- GBP/USD regains positive traction on Tuesday amid fresh selling around the dollar.
- Less hawkish Fed hike expectations continue to weigh on the USD amid a risk positive tone.
- A bleak outlook for the UK economy is acting as a headwind for the pound and limiting the pair’s gains.
The pair GBP/USD it attracts new buying on Tuesday and reverses a significant portion of the previous day’s decline to a three-day low. However, the pair is back a few points from the daily high hit during the first half of the European session and is currently trading just above the psychological level of 1.2000.
A combination of factors causes fresh selling around the US dollar, which in turn causes GBP/USD to receive some support. Global risk sentiment gets a small boost after Chinese authorities hinted the possibility of relaxing COVID-19 restrictions, despite the increase in cases across the country. This follows from signs of stability in the stock markets and weighs on the safe-haven dollar. Also, expectations that the Fed will slow the pace of its tightening put additional downward pressure on the dollar.
In fact, the minutes of the November Federal Open Market Committee (FOMC) meeting, released last week, cemented market expectations in favor of a relatively minor rate hike of 50 basis points in December. This leads to a further decline in US Treasury yields and continues to weigh on the dollar. The pound sterling, for its part, is supported by rising expectations for further substantial rate hikes from the Bank of England. Nevertheless, the bleak outlook for the UK economy is acting as a headwind for sterling and limiting any significant movement GBP/USD appreciation, at least for now.
No major UK macroeconomic data will be released on Tuesday, while the Conference Board’s Consumer Confidence Index will be released on the US economic calendar. In addition, speeches by Catherine Mann, a member of the Bank of England’s Monetary Policy Committee, and Andrew Bailey, Governor of the Bank of England, will serve as encouragement. Traders will also take note of broader risk sentiment, which could weigh on the dollar and create short-term opportunities around GBP/USD.
Technical levels to watch
Source: Fx Street
I am a writer for World Stock Market. I have been working in finance for over 7-8 years, and I have experience with a variety of financial instruments. My work has taken me to Japan, China, Europe, and the United States. I speak Japanese and Chinese fluently.
