- GBP/USD pulls back from a multi-month high amid modest intraday USD recovery.
- The rebound in US bond yields and a softer risk tone benefit the safe-haven dollar.
- A lackluster outlook for the UK economy helps limit the pair’s gains.
The pair GBP/USD has started the new week on a positive note and has reached its highest level since September 16, although momentum has petered out near 1.2350. The pair returns from its intraday gains and pulls back below the 1.2250 level during the early part of the European session.
A combination of factors is helping the US dollar to recover modestly from the five-month lows reached earlier this Monday, which in turn acts as a headwind for GBP/USD. In spite of the easing of COVID-19 restrictions in China, concerns about a deeper global economic downturn continue to weigh on investor sentiment. This is evident from the softer tone around equity markets, which, coupled with a rally in US Treasury yields, offer some support for the safe-haven dollar.
The upbeat monthly US jobs report (NFP) released on Friday and a surprise rise in wages point to a further increase in inflationary pressures. This validates Federal Reserve Chairman Jerome Powell’s forecast that the maximum interest rate will be higher than expected and pushes up US Treasury yields. That said, the firmness of expectations that the US central bank will slow the pace of its tightening could dampen dollar gains. In fact, markets expect a 50 basis point rate hike in December.
The pound sterling, for its part, looks hurt by the gloomy outlook for the UK economy. Furthermore, dovish comments from Bank of England Chief Economist Huw Pill last week that inflation could start to fall could discourage bulls from taking aggressive positions around the GBP/USD pair. The mixed fundamental background suggests that the pair is more likely to consolidate its recent strong gains ahead of the release of UK and US Services PMI data.
Later, at the start of the American session, traders will refer to the US ISM Services PMI release. This, coupled with US bond yields and broader risk sentiment, will influence dollar price action and create some short-term opportunities around GBP/USD.
GBP/USD technical levels
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
