- A modest USD weakness helped GBP / USD gain some positive traction on Tuesday.
- The rally lacked a strong following and faltered just before 1.3700.
- The market’s focus remains on the outcome of a two-day FOMC monetary policy meeting.
The pair GBP/USD it trimmed a portion of its intraday gains and was last seen hovering around the 1.3665-70 zone during the early days of the American session, still up 0.10% on the day.
The risk appetite boost in the markets undermined demand for the safe-haven US dollar and helped GBP / USD gain some positive traction on Tuesday. However, a combination of factors helped limit any deeper USD losses and kept any further gains for the pair in check rather prompting some selling near 1.3700.
Investors remain concerned about contagion from China’s Evergrande debt crisis, the fast-spreading Delta variant and a global economic slowdown. This, coupled with expectations of an imminent reduction announcement from the Fed, acted as a tailwind for the dollar. This, in turn, warrants some caution before placing new bullish bets around the GBP / USD pair.
Despite signs of easing from inflationary pressures in the US, incoming macroeconomic data pointed to continued economic recovery. This, in turn, has fueled speculation that the Fed would start rolling back its massive pandemic-era stimulus sooner rather than later. Therefore, the focus is on the outcome of a two-day FOMC meeting.
The Fed is scheduled to announce its monetary policy decision on Wednesday and investors will be looking for new clues as to the likely timing of the downsizing plan. Apart from this, the latest economic projections, especially the so-called dot plot, should help investors determine the next leg of a directional move for the dollar.
This will be followed by the Bank of England meeting on Thursday. The combination of key events from the central bank should provide a significant boost to the GBP / USD pair during the latter part of this week. However, the pair, so far, has managed to hold on to modest daily gains and remains at the mercy of sentiment surrounding the USD.