GBP/USD clings to modest recovery gains near 1.3050, lacks follow-through

  • GBP/USD staged a modest rebound from the new yearly low hit earlier this Monday.
  • The risk appetite drive undermined the safe-haven USD and extended support for the pair.
  • The rally lacked bullish conviction amid the Ukraine crisis and before the BoE/FOMC.

The pair GBP/USD it maintained its modest recovery gains early in the American session and was last seen trading just a few pips below the daily high around 1.3050.

Having defended the psychological 1.3000 level, the GBP/USD pair staged an intraday rebound from the lowest level since November 2020 reached on Monday amid modest US dollar weakness. Hopes for a diplomatic solution to end the war in Ukraine raised global risk sentiment and undermined demand for traditional safe-haven assets, including the dollar.

The British pound got additional support from expectations that the Bank of England will raise interest rates at its next meeting on Thursday. The GBP/USD pair further benefited from some crossover strength stemming from a sharp rise in the GBP/JPY cross. That said, the attempted recovery move lacked bullish conviction or strong follow-on buying.

Market optimism remained limited amid the risk of a further escalation in the conflict between Russia and Ukraine. Indeed, Russia on Sunday attacked a large Ukrainian base near the border with NATO member Poland. In addition to this, a Kremlin spokesman said on Monday that all Russian plans in Ukraine will be fulfilled in full and within the established deadlines.

Aside from this, elevated US Treasury yields acted as a tailwind for the USD and kept any significant upside for GBP/USD limited. Recent monster gains in commodity prices have been fueling concerns of a major inflation shock, bolstering bets for an imminent start of Fed policy tightening and pushing US bond yields higher.

Investors also seemed reluctant to make aggressive bets ahead of the central bank’s key risk events: the outcome of a two-day FOMC meeting on Wednesday and the BoE’s policy decision on Thursday. Meanwhile, traders will take note of new developments surrounding the Russia-Ukraine saga, USD price dynamics and Tuesday’s release of UK employment details.

Technical levels

Source: Fx Street

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