- GBP/USD attracted some buying on the dips on Wednesday and reversed the initial decline to a fresh year-ago low.
- A positive risk tone triggered some profit taking around the safe haven USD and extended some support.
- Geopolitical risk acted as a tailwind for the dollar and kept any significant gains for the pair limited.
The pair GBP/USD reversed the early decline of the European session to a new yearly low and was last seen trading in neutral territory, just above the 1.3300 round level.
As investors weigh the impact of aggressive sanctions against Russia over its invasion of Ukraine, a nice rally in equity markets undermined traditional safe-haven assets on Wednesday. This, in turn, forced the US dollar to cut its intraday gains to the highest level since June 2020 and helped the GBP/USD pair attract some buying near the 1.3270 area.
Apart from this, the diminishing odds of a 50bp Fed rate hike move in March acted as a headwind for the dollar. Recent geopolitical events now appear to have convinced investors that the Fed would refrain from a more aggressive policy stance to combat stubbornly high inflation. That said, the recovery in US Treasury yields did provide some support for the dollar.
This, coupled with the worsening situation in Ukraine, continued to boost the dollar’s status as a global reserve currency and kept any significant upside for GBP/USD limited. In the latest geopolitical developments, reports indicated that Russia intensified the shelling of Ukrainian cities and that a large Russian convoy was approaching the capital, Kiev.
In addition, the Ukrainian foreign minister said it was not clear when the second round of talks with Russia would take place. In addition to this, a spokesman for the German economy minister pointed out that they have prepared three more sanctions packages against Russia. Therefore, the market’s focus will remain glued to the new headlines surrounding the Russia-Ukraine saga.
Meanwhile, traders on Wednesday could closely follow the US ADP report on private sector employment. Later during the US session, Fed Chairman Jerome Powell will testify before the House Financial Services Committee and give GBP/USD a boost. However, any immediate market reaction is more likely to be overshadowed by geopolitical headlines.
Technical levels
Source: Fx Street
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