- Renewed buying interest around the USD sparked further selling around GBP / USD on Wednesday.
- Stable US bond yields and a softer tone in equity markets supported the USD.
- Investors could refrain from opening aggressive positions before the release of US consumer inflation figures.
The pair GBP / USD has recovered from its initial drop to the 1.3845 region. At the time of writing, the pair remains slightly higher on the day, near its daily highs around the 1.3900 region.
The pair has been witness some sales during the first part of the trading action on Wednesday and has retraced further from the three-day highs, around the 1.3925 region touched in the previous session. The decline was solely due to the emergence of new purchases around the US dollar, although it lacked a strong follow-on sell.
After the reversal of the previous day, USD strengthened again and approached multi-month highs amid signs of stability in US Treasury yields The dollar has seen supported by the optimistic US economic outlook, bolstered by the successful launch of the COVID-19 vaccine and the passage of a huge US fiscal spending bill.
Apart of this, a softer tone around equity markets further sustained the US dollar safe haven and put some pressure on GBP / USD. Having said that, the drop is still limitedas investors have preferred to stay on the sidelines and await the release of the latest US consumer inflation figures on Wednesday.
Reflation trading has been fueling speculation about a possible spike in inflation in the US and has raised doubts that the Fed will keep interest rates ultra-low for a longer period. Therefore, the US CPI report, to be released at the start of the American session, will now play a key role in influencing USD price dynamics.
Meanwhile, US bond yields would boost demand for the dollar. This, coupled with broader market risk sentiment, could help investors seize some short-term opportunities around GBP / USD.
GBP / USD technical levels
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