- GBP/USD saw some intraday selling on Tuesday and fell to a three-day low.
- Brexit woes and less than rosy expectations from the Bank of England continued to act as a headwind for sterling.
- Rising US bond yields revived demand for dollars and contributed to intraday selling.
The pair GBP/USD fell almost 60 pips from the daily high reached during the early European session and fell to a three-day low around the 1.2235-1.2230 area in the last hour.
The latest Brexit-related development on the Northern Ireland Protocol has increased the risk of further tensions between Britain and the European Union. Indeed, the UK House of Commons on Monday voted 295-221 in favor of a controversial bill that would unilaterally nullify part of Britain’s divorce deal with the EU agreed in 2020.
Apart from this, speculation that the Bank of England will take a more gradual approach to raising interest rates amid fears of a UK recession acted as a headwind for the pound. This, coupled with the appearance of some US dollar buying, pulled the GBP/USD pair away from the one-week highs hit the previous day.
The influx of risk appetite pushed US Treasury yields higher, which, in turn, helped the dollar reverse modest intraday losses. That said, lowering bets on more aggressive policy tightening by the Fed could deter USD bulls from making aggressive bets and help limit deeper losses for GBP/USD, at least. for now.
The recent decline in commodity prices appears to have eased concerns about persistently rising inflation. This, coupled with the worsening economic outlook, forced investors to reassess expectations of a more rapid tightening of policy by the Fed. Therefore, the market’s attention will continue to be attentive to the appearance of the president of the Fed Jerome Powell on Wednesday.
Bank of England Governor Andrew Bailey will also speak at the ECB forum in Sintra, Portugal on Wednesday, which should help investors determine the next leg of a directional move for GBP/USD. Meanwhile, on Tuesday, traders will benchmark US macroeconomic data: the Conference Board Consumer Confidence Index and the Richmond Manufacturing Index.
Technical levels
Source: Fx Street
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