- GBP/USD gains some traction on Tuesday amid a modest dollar pullback from its 20-year high.
- Concerns over rising UK debt could act as a headwind for the British pound and limit the pair’s rise.
- Expectations of an aggressive Fed interest rate hike should limit dollar losses, warranting some caution on the part of bulls.
The pair GBP/USD attracts some purchases on Tuesday and breaks above the 1.0800 level during the European session.
A combination of factors triggers a modest retreat from the US dollar from two-decade highs hit the previous day, which in turn looks like a tailwind for the GBP/USD pair. The bullish momentum coupled with the pullback in US Treasury yields has traders taking some profits on their bullish safe-haven dollar positions.
On the other hand, the pound sterling receives some support from the special statement from the Bank of England the day before, stating that it will not hesitate to change interest rates when necessary. The BoE added that it is closely monitoring developments in the financial markets, especially after the recent GBP/USD free fall to an all-time low.
Despite the aforementioned supportive factors, the GBP/USD pair has, thus far, been struggling to gain any significant traction. Lack of confidence in the UK government’s ability to manage mounting debtespecially after the announcement of a mini-budget on Friday, continues to act as a headwind for the British pound and limit the rise of the pair.
Furthermore, the prospects of more aggressive tightening of monetary policy by the Federal Reserve they should limit any deeper decline in US bond yields and offer some support to the dollar. This could help curb any significant gains in the GBP/USD pair, which would warrant some caution on the part of aggressive bulls.
There will be no major economic news out of the UK on Tuesday, leaving the GBP/USD pair at the mercy of the dollar’s price dynamics. Therefore, the focus is now on Fed Chairman Jerome Powell’s speech at an event in Paris. This coupled with US macro data will boost USD demand and provide some lift to the GBP/USD pair.
GBP/USD technical levels
Source: Fx Street
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