- GBP/USD enters negative territory for the second day in a row on Tuesday.
- The dollar attracts safe haven flows in the face of recession risks and exerts pressure.
- Expectations that the Bank of England will continue to raise rates should limit deeper losses.
The pair GBP/USD It attracts some sellers after an early rally to the 1.2415 zone and turns lower for the second day in a row on Tuesday. The pair retreats further from the highest level since June 2022 hit on Monday and falls towards the round 1.2300 level, or a four-day low during the first half of the European session.
The US dollar recovers slightly from its nine-month low and turns out to be a key factor putting some downward pressure on GBP/USD. Market sentiment remains fragile amid concerns about economic headwinds stemming from the worst COVID-19 outbreak in China. In addition, the protracted war between Russia and Ukraine has fueled recession fears. This, in turn, dampens investor appetite for riskier assets and drives some safe-haven flows into traditionally safe assets, including the dollar.
The pound sterling, for its part, is being pressured by the weakness of the PMI indices, which showed a contraction of business activity in January, both in the manufacturing and services sectors. However, speculation that high consumer inflation will keep pressure on the Bank of England (BoE) to further raise interest rates could lend sterling some support. Aside from this, increased bets on a 25 basis point Fed rate hike in February could cap the USD and help limit deeper losses for GBP/USD.
Therefore, it will be prudent to wait for strong selling before confirming that spot prices have peaked in the near term and positioning for any significant corrective decline. Preliminary data from the PMI and the Richmond manufacturing index will be published in the US economic calendar. This, along with US bond yields and broader risk sentiment, will influence USD price dynamics and create short-term trading opportunities around GBP/USD.
Technical levels to watch
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
