- GBP / USD is under new selling pressure Tuesday amid broad USD strength.
- Rising US bond yields and risk aversion benefit the safe-haven dollar.
- The lack of a strong follow-up on selling warrants some caution for aggressive bears.
A strong rebound in USD demand has dragged GBP / USD to new daily lows, around the 1.3660 region during the first half of the European session.
After a modest rally to the 1.3715 area, the GBP / USD pair saw some new selling on Tuesday and reversed the previous day’s modest gains amid a broad strength in the US dollar. The continuum rebound in US Treasury yields has pushed the DXY index to the highest level since August 20. This, in turn, has been seen as a key factor putting downward pressure on the pair.
In fact, the benchmark 10-year US government bond yield has skyrocketed to its highest level since June 17. amid prospects for an early tightening of policies by the Fed. It’s worth remembering that the Fed hinted last week that it will soon begin to reverse its massive pandemic-era stimulus. In addition to this, the so-called dot chart showed the inclination of policy makers to raise interest rates in 2022.
Market expectations were bolstered by comments yesterday from Fed Governor Lael Brainard, New York Fed Chairman John Williams and Chicago Fed Chairman Charles Evans. Apart of this, a change in global risk sentiment, amid lingering concerns about China’s Evergrande Group’s unresolved debt crisis, has further benefited the safe-haven USD.
Secondly, sterling has come under pressure from growing signs of the UK fuel crisis. Fears that a fuel shortage have led to panic buying and long lines at many gas stations. The UK is estimated to be missing over 100,000 truck drivers, causing problems for a number of industries in recent months.
Despite the negative factors, the GBP / USD has so far managed to stay just above the lows of the previous day. This makes it wise to wait for some follow-on selling before positioning for any further drops. In the absence of economic releases from the UK, price dynamics around the USD will influence intraday momentum.
Later, at the beginning of the American session, investors will take the indications of the testimony of Fed Chairman Jerome Powell, before the Senate Banking Committee. This, coupled with the release of the Conference Board Consumer Confidence Index and US bond yields, will boost USD demand and could generate some trading opportunities around the GBP / USD pair.
GBP / USD technical levels
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