- GBP / USD is back around 35 pips from daily highs amid a modest rebound in the USD.
- A rally in US bond yields provides respite for USD bulls, at least for now.
- The decline appears limited, which warrants some caution before positioning for a further decline.
The pair GBP/USD has seen some selling at the start of the European session on Wednesday and has fallen to new daily lows, around the region of 1.4135.
The pair has struggled to capitalize on its modest rally and found new sales near 1.4170 area, now falling around 35 pips from the daily highs. In the absence of a new fundamental catalyst, the pullback could only be attributed to a modest rally in the US dollar and some weakness driven by the cross from the EUR / GBP cross.
The dollar has found some support in a rally in US Treasury yields., although expectations that the Fed will maintain its ultra-flexible policy stance for a longer period limited gains. Several FOMC officials reiterated that any increase in prices is more likely to be temporary and it helped alleviate inflation concerns in the United States.
Investors now seem convinced by the Fed’s stubbornly pessimistic view, which, in turn, has led to the recent sharp drop in US bond yields. In fact, the yield on the benchmark 10-year US government bond fell to 1.56%, at multi-week lows on Tuesday, which, coupled with weaker US consumer confidence data, dragged the DXY dollar index to its lowest level since January.
On the other hand, optimistic prospects for the UK’s economic recovery after the pandemic could continue to give sterling some support. This could also act as a tailwind for GBP / USD and help limit any significant drops amid the absence of relevant economic releases, either from the UK or the US.
From a technical perspective, the good price movements in both directions since the beginning of this week point to indecision on the short-term trajectory of the GBP / USD pair. This requires caution before opening aggressive positions and positioning yourself in a firm direction.
GBP / USD technical levels
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