GBP / USD recovers from multi-week lows and targets the 1.3700 level

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  • GBP / USD gains some positive traction on Tuesday and recovers some of the previous day’s losses.
  • Risk appetite in the markets weighs on the safe-haven USD and provides a modest rally to the pair.
  • Optimistic expectations from the Fed and rising US bond yields could continue to act as a tailwind for the USD and limit the pair’s rise.

The pair GBP/USD moves higher at the start of the European session on Tuesday, staying close to its daily highs around the 1.3680-85 region.

The pair has captured some buying during the first half of the trading action on Tuesday and has recovered part of the previous day’s drop to a four-week lows. The rally has allowed the GBP / USD pair to break three consecutive days of losing streak and is due exclusively to a modest weakness in the US dollar.

The appetite for risk, as shown by a strong rally in equity markets, has been seen as a key factor driving has weighed on the demand for the safe haven US dollar. However, fears of Evergrande’s possible bankruptcy in China could limit market optimism amid expectations of an imminent Fed announcement.

Investors now seem convinced the Fed would begin reversing its massive pandemic-era stimulus sooner rather than later. This, coupled with a nice rise in US Treasury yields, should act as a tailwind for the USD and limit GBP / USD gains, justifying some caution for the bulls.

There is no major economic data release on Tuesday from the UK, leaving the GBP / USD at the mercy of USD price dynamics. This makes it prudent to wait for some continuation purchases above the 1.3700 level before positioning for additional profit.

Later at the start of the American session, data from the American housing market could also do little to provide a significant boost to the GBP / USD pair. Market focus remains on the outcome of the FOMC monetary policy meeting two days in search of clues about the Fed’s downsizing plan.

Aside from this, investors will take more clues from the Bank of England’s latest policy update, scheduled on Thursday. Key events from central banks should help determine the next directional move for GBP / USD.

GBP / USD technical levels

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