- A good recovery in USD demand sparked further selling around GBP / USD on Tuesday.
- The optimistic US economic outlook and a softer risk tone boosted some safe-haven flows to the USD.
- The decline in US bond yields did little to constrain the dollar amid expectations of a rate hike from the Fed.
The pair GBP/USD it maintained its strongly offered tone during the mid-European session and was last seen hovering near the lower end of its daily trading range, around the 1.3825-20 region.
The pair witnessed a dramatic intraday reversal on Tuesday and fell nearly 100 pips from the 1.3920 region, or two-week highs amid the surge of new buying around the US dollar. Investors remained optimistic about the prospects for relatively strong economic growth in the US amid the impressive advance of coronavirus vaccines. Incoming economic data, including the latest NFP report and Monday’s ISM Services PMI, reinforced the optimistic outlook and continued to prop up the dollar.
Aside from this, a generally softer tone around US equity futures further benefited the USD’s safe-haven status and further contributed to the GBP / USD’s intraday slide. The combination of support factors helped offset the ongoing decline in US Treasury yields, which tend to weigh on the dollar. That said, increased bets on a Fed rate hike should limit the decline in US bond yields.
Reflation trading has fueled speculation about a pickup in US inflation and raised doubts that the Fed will keep interest rates ultra-low for a longer period. This suggests that the path of least resistance for the dollar remains to the upside. This, in turn, supports the prospects for a further intraday depreciation movement for the GBP / USD pair amid the absence of relevant economic releases in the US market.
Technical levels
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