- GBP/USD staged a modest recovery from the 1.3000 level, or a new low since November 2020.
- Upbeat UK jobs report reaffirmed BoE rate hike bets and extended support to sterling.
- Diplomatic hopes in Ukraine, falling US bond yields undermined the safe-haven dollar.
The pair GBP/USD added to its intraday recovery gains and rose to a fresh daily high, around the 1.3075-1.3080 region during the early American session.
A combination of factors helped the GBP/USD pair attract some buying near the key psychological 1.3000 level on Tuesday and stage a nice rally from the lowest level since November 2020. The British pound was supported by upbeat employment details in the UK, which cemented expectations that the Bank of England will raise interest rates at its meeting on Thursday. Apart from this, the modest weakness of the US dollar provided an additional boost to the GBP/USD pair and contributed to the positive intraday movement.
Even as Russian shelling of Ukrainian cities has intensified, optimism about a diplomatic solution to end the war underpinned global risk sentiment. This was evident from a generally positive tone in equity markets, which, coupled with retreating US Treasury yields, weighed on the safe-haven US dollar. That said, expectations of an imminent start of Fed policy tightening should act as a tailwind for the dollar and cap GBP/USD.
The market seems convinced that recent geopolitical events could do little to prevent the US central bank from raising its target funds rate to rein in inflation expectations. This was seen as a key factor behind the recent sell-off in US money markets, which pushed the benchmark 10-year government bond yield to its highest level since June 2019 on Monday. fundamental bottom favors USD bulls and warrants caution before placing bullish bets on GBP/USD.
On the economic data front, the US Bureau of Labor Statistics reported that the Producer Price Index (PPI) for final demand rose to 10% annually in February from 9.7% previously. Meanwhile, the annual core PPI, which excludes food and energy prices, rose to 8.4% from 8.3% vs. 8.7% estimated. Separately, the Empire State Manufacturing Index declined to -11.8 in March from February’s 3.1 and missed the expected 7.25 by a wide margin. The data did not provide a significant boost to the USD or the GBP/USD pair, as the focus remains on new geopolitical developments.
Investors also seemed reluctant and might prefer to wait on the sidelines ahead of key risks from the central bank event. The Fed is scheduled to announce the outcome of a two-day policy meeting during the US session on Wednesday. This will be followed by the BoE policy meeting on Thursday, which will play a key role in determining the next leg of a directional move for GBP/USD. This makes it prudent to wait for some follow-on buying before confirming a short-term bottom.
Technical levels
Source: Fx Street
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