- GBP / USD faces rejection near the 1.4000 level and cuts a portion of its initial gains.
- A sudden spike in demand for USD is considered a key factor putting some pressure on the pair.
- An optimistic UK economic outlook offers some support and helps limit the decline.
The pair GBP/USD has fallen around 60-70 pips from the daily highs, although it has still managed to retain modest intraday gains just right around the region of 1.3950.
The pair has regained some positive traction on the first day of a new week and has recovered a significant part of Friday’s losses below 1.3900, at a week-long lows. The rebound, however, has lacked a strong follow-on buy and faced a rejection near the key psychological level of 1.4000 amid a sudden spike in demand for the US dollar.
The dollar has attracted some buying during the first half of the European session on Monday and has been supported by a modest rebound in US Treasury yields. Investors remain optimistic about the prospects for a strong global economic recovery amid progress on COVID-19 vaccines and a massive US fiscal spending plan.
In fact, The House of Representatives approved the $ 1.9 trillion aid package on Saturday of US President Joe Biden. The legislation will now go to the United States Senate for further deliberation. The development has forced investors to start pricing in a spike in inflation and raised questions about the possibility of ultra-low interest rates for a longer period.
This, in turn, has continued to fuel reflation trading, which pushed the benchmark 10-year US government bond yield to the highest level since February 2020 last week and sustained the USD. Having said that, a strong rally in stock markets could limit safe-haven US dollar gains and help limit deeper losses for the GBP / USD pair.
Apart of this, an upward revision of the UK manufacturing PMI for February, which came in at 55.1 points compared to the estimated 54.9, has offered some support for the GBP / USD pair. This is due to the British government’s plan to ease current lockdown measures and hopes for a rapid UK economic recovery, which should further prop up the British pound.
From a technical perspective, the inability of the GBP / USD pair to capitalize on the positive movement and the appearance of some selling at higher levels favor the bears. Sustained weakness below the 1.3900 level will reinforce the negative outlook and suggest that GBP / USD has already peaked in the near term.
Market participants are now awaiting the US economic calendar, which highlights the publication of the ISM manufacturing PMI at the start of the American session. This, coupled with US bond yields and broader market risk sentiment, could influence USD price dynamics and generate some short-term trading opportunities around the GBP / USD pair.
GBP / USD technical levels
.
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
