- A sudden spike in demand for USD did not help GBP / USD capitalize on its initial gains.
- Diminishing the odds of an early Fed tightening limited the rise for the dollar.
- Optimism about easing COVID-19 restrictions in the UK sustained the British pound.
The pair GBP/USD it fell to fresh daily lows, around the 1.3835 region during the mid-European session, although it quickly rallied a few pips thereafter. The pair was last seen trading modest intraday gains, just above 1.3850.
The pair built on its recent rebound from the lowest level since mid-April and gained some traction during the first half of trading action on Tuesday. The momentum pushed the GBP / USD pair to week-long highs, although it lost steam near 1.3900 amid a sudden spike in demand for the US dollar.
The USD found some support from the emergence of strong selling around the shared currency in reaction to the disappointing release of the ZEW survey results. Aside from this, concerns over the spread of the highly contagious delta variant of the coronavirus acted as a tailwind for the safe-haven dollar.
The GBP / USD pair fell almost 65 pips from the daily highs, but managed to attract some buying on the dips at lower levels and was supported by a combination of factors. Investors now appear to be convinced that the Fed will wait longer before deciding to tighten its monetary policy, which, in turn, limited the USD’s gains.
On the other hand, British Prime Minister Boris Johnson’s announcement on Monday that all restrictive measures would be lifted on July 19 continued to prop up the British pound. This was seen as another one that extended some support to the GBP / USD pair and helped limit any significant declines, at least for the time being.
Market participants are now looking forward to the US economic agenda, highlighting the launch of the ISM Services PMI. The data can influence USD price dynamics and give GBP / USD some momentum. However, the key focus will remain Wednesday’s release of the minutes of the June FOMC monetary policy meeting.