- GBP/USD gains some positive traction on Monday amid the appearance of some selling around the USD.
- The recent drop in US bond yields and stable risk sentiment weigh on the USD as a safe haven.
- The fundamental backdrop warrants some caution before opening any bullish positions around the pair.
The pair GBP/USD has shown resistance below the 1.2200 level and has attracted some buying on the first day of a new week. The pair maintains its modest gains during the first European session and is now trading just below 1.2250.
A combination of factors did not help the US dollar to capitalize on the previous session’s strong move higher, but rather caused some selling on Monday, which in turn offered GBP/USD support. The so-called Fed dot plot showed that the median projection of the federal funds rate was 3.4% for 2022 and 3.8% for 2023. However, investors were comforted by the fact that monetary policymakers forecast that the rate would drop to 3.4% in 2024 and 2.5% in the long term. This caused the recent sharp decline in US Treasury bond yields. Apart of this, signs of stability in financial markets further weighed on the safe-haven greenback.
That said, market participants seem convinced that the Federal Reserve will tighten its monetary policy at a faster pace to combat persistent inflation, which spiked in May to more than a four-decade high. Furthermore, concerns that a more aggressive move by major central banks will challenge global economic growth should help limit the dollar’s decline further. In addition, the expectations that the Bank of England will opt for a more gradual approach in raising interest rates could act as a headwind for the British pound. This, along with the impasse between the UK and the EU over the Northern Ireland protocol of the Brexit deal, should cap GBP/USD gains.
No relevant economic data will be released in the UK on Monday and US markets will be closed for the celebration of National Independence Day. This could prevent traders from opening aggressive bullish positions around the GBP/USD pair. Therefore, it will be prudent to wait for strong continuation buying before investors begin to position themselves for an extension of the recent bounce from last week’s low. That said, St. Louis Fed President James Bullard’s scheduled speech could influence USD price dynamics and give GBP/USD some momentum later in the American session.
GBP/USD technical levels
Source: Fx Street
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