- GBP/USD gains ground for the second day in a row amid continued profit-taking around the dollar.
- Expectations for a more aggressive rate hike by the Fed and risk appetite weigh on the dollar.
- Brexit concerns could act as a headwind for the British pound and limit the pair’s gains.
The pair GBP/USD extends last week’s bounce from near 1.1700 to its lowest level since March 2020 and starts the new week on a positive note. The intraday move higher extends through the early part of the European session and lifts the pair to a multi-day high, above the 1.1980 area.
Several Federal Reserve officials noted last week that were not in favor of a higher rate hike than the markets foresaw after the publication of consumer inflation in the United States. Investors were quick to react, lowering their expectations for a 100 basis point Fed rate hike in July. Apart of this, risk appetite led to an extension of profit taking around the US dollar from a two-decade high, which in turn provided a nice boost to the GBP/USD pair.
The pound sterling received additional support from rising probabilities of a new rate hike of 50 basis points by the Bank of England in August, reinforced by last week’s UK macroeconomic releases. Monday’s sharp rise of more than 100 pips could also be attributed to some technical buying for sustained strength above the 1.1900 level. That being said, the Brexit woes could act as a headwind for the British pound and curb the bulls before opening aggressive GBP/USD positions.
Investors continue concerned that the controversial Northern Ireland Protocol Bill of the British Government triggering a trade war with the European Union in the midst of the current cost of living crisis. This makes it prudent to wait for strong continuation buying before confirming that the GBP/USD pair has formed a short-term bottom. In the absence of any major market-moving economic data from either the UK or the US, the dollar’s price dynamics will be closely watched by investors to take advantage of any short-term momentum.
GBP/USD technical levels to watch
Source: Fx Street
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