- GBP/USD saw some intraday selling on Friday amid a strong uptick in USD demand.
- A softer risk tone, the Fed’s dovish outlook turned out to be key factors supporting the dollar.
- The lack of follow-through on selling warrants caution before making aggressive bearish bets.
The pair GBP/USD remained on the defensive heading into the American session and was last seen near the daily low around the 1.3120 region.
The pair struggled to capitalize on its modest early rally on Friday, instead finding a fresh bid near the 1.3180-1.3185 region and pressured by a combination of factors. A dovish assessment of the Bank of England’s monetary policy decision on Thursday was seen as a key factor acting as a headwind for sterling. Aside from this, a nice uptick in US dollar demand caused some intraday selling around the GBP/USD pair.
The lack of progress in the peace talks between Russia and Ukraine kept a damper on recent optimism and moderated investors’ appetite for assets perceived as riskier. Traders also seemed nervous ahead of a meeting between US President Joe Biden and his Chinese counterpart Xi Jinping. This was evident from a generally weaker tone around equity markets, which, in turn, extended some support to traditional safe-haven assets, including the dollar.
Apart from this, the Fed’s dovish outlook, indicating that it could raise interest rates in the remaining six meetings in 2022, further supported the dollar. The combination of supportive factors, to a greater extent, helped offset a softer tone in equity markets and did not dent the intraday bullish sentiment surrounding the USD. That being said, the lack of follow through on GBP/USD selling warrants bearish traders’ caution.
This coupled with the bounce overnight makes it prudent to wait for a convincing break through 1.3100 before positioning for any further downside moves. Sustained weakness below will suggest that the recent strong recovery move from the lowest level since November 2020 has run its course. The GBP/USD pair could turn vulnerable to accelerate the decline and challenge the psychological 1.3000 level, or the yearly low touched earlier this week.
Market participants now eagerly await the US economic calendar, with figures for existing home sales. The data could do little to influence USD price dynamics as the focus remains on new developments surrounding the Russia-Ukraine saga. Aside from this, headlines coming out of the Biden-Xi meeting could influence broader market risk sentiment and produce some short-term trading opportunities around the GBP/USD pair.
Technical levels
Source: Fx Street
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