GBP / USD bounced well amid a modest USD pullback from higher levels.
The rally in equities triggered some profit-taking around the safe-haven dollar.
A rally in US bond yields sustained the USD and limited the pair’s gains.
The pair GBP/USD it rallied around 75 pips during the mid-European session and jumped to the upper end of its daily trading range, although it lacked tracking. The pair was last seen trading around the 1.3915 region, almost unchanged for the day.
A positive rally in equity markets limited intraday gains in the safe-haven US dollar, rather sparking profit-taking near month-long highs. This, in turn, was seen as one of the key factors that helped GBP / USD attract some buying on dips near the 1.3860-55 region, or one-and-a-half week lows.
That being said, the upbeat US economic outlook helped limit any significant USD decline and kept any further gains for GBP / USD limited. Investors remain optimistic about a relatively strong US economic recovery from the pandemic amid progress on COVID-19 vaccines and a massive US fiscal stimulus plan.
Meanwhile, reflation trading seemed to have forced investors to price a spike in inflation and raised doubts that the Fed would keep rates ultra-low for a longer period. Beyond this, expectations that the Fed will show greater tolerance for rising bond yields could continue to prop up the dollar.
GBP / USD stopped its intraday rally near the 100-period SMA on the 4-hour chart. This makes it more prudent to wait for some solid follow-up buying before confirming that the recent sharp pullback from the nearly three-year highs is on track and is positioned for the resumption of the previous bullish trajectory.
There is no major market-moving economic data released in the US on Tuesday. Therefore, US bond yields will continue to play a key role in influencing USD price dynamics. Apart from this, the broader market risk sentiment will also be considered for some short-term trading opportunities around the GBP / USD pair.
Technical levels
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