GBP/USD rebounds from its lowest level since March 2020

  • A dramatic dollar reversal from a 20-year high prompts some short-covering around GBP/USD.
  • Dovish expectations from the Fed, rising US bond yields and a risk-off mood should limit dollar losses.
  • The gloomy economic outlook for the UK suggests that the recovery attempt is likely to be short-lived.

The pair GBP/USD it has bounced from the 1.1650-1.1645 zone, its lowest level since March 2020, reached this Monday. The pair makes a new daily high during the first North American session, although it lacks follow-through and currently sits just above 1.1700.

The sharp reversal of the US dollar from a new 20-year high is seen as a key factor that prompted some intraday short covering around the GBP/USD pair. In the absence of a fundamental catalyst, the dollar’s pullback could be attributed solely to profit-taking and is more likely to remain muted amid Fed expectations.

Bets were bolstered by Fed Chairman Jerome Powell’s remarks on Friday that interest rates would stay higher longer to reduce inflation. In fact, markets are currently pricing in a higher probability of a 75 basis point Fed rate hike in September. This is reinforced by a further rise in US Treasury yields.

Aside from this, the prevailing risk environment – as evidenced by the generally weaker tone in equity markets – supports the prospect of some haven dollar buying. This, coupled with the gloomy outlook for the UK economy, warrants some caution before confirming that GBP/USD has bottomed out.

The backdrop seems to continue to lean heavily in favor of bearish traders, suggesting that any subsequent rally could be seen as a selling opportunity and is at risk of fading quickly. Market attention now turns to the release of the monthly US employment report, popularly known as the NFP, on Friday.

Technical levels

GBP/USD

Panorama
Last Price Today 1.1714
Today’s Daily Change -0.0025
Today’s Daily Change % -0.21
Today’s Daily Opening 1.1739
Trends
20 Daily SMA 1.2022
50 Daily SMA 1.2049
100 Daily SMA 1.2305
200 Daily SMA 1.2835
levels
Previous Daily High 1.19
Previous Daily Minimum 1.1733
Previous Maximum Weekly 1.19
Previous Weekly Minimum 1.1717
Monthly Prior Maximum 1.2246
Previous Monthly Minimum 1,176
Daily Fibonacci 38.2% 1.1797
Daily Fibonacci 61.8% 1.1837
Daily Pivot Point S1 1.1682
Daily Pivot Point S2 1.1624
Daily Pivot Point S3 1.1515
Daily Pivot Point R1 1.1849
Daily Pivot Point R2 1.1958
Daily Pivot Point R3 1.2016

Source: Fx Street

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