- GBP/USD started the new week on a positive note amid fresh USD selling.
- The recent decline in US bond yields and a positive risk tone weighed on the dollar as a haven.
- Aggressive Fed expectations should cap dollar losses and cap currency gains.
The pair GBP/USD supported its modest intraday gains and rose to a fresh daily high around the 1.2275-1.2280 area during the mid European session.
Against the backdrop of falling US Treasury yields following the FOMC, a generally positive risk tone put some downward pressure on the safe-haven US dollar on Monday. . This, in turn, was seen as a key factor helping the GBP/USD pair regain positive traction and a portion of Friday’s losses. However, the recovery in the currency remains difficult, so aggressive bulls should be cautious.
Investors remain concerned that a more aggressive move by major central banks to rein in inflation will challenge global economic growth. This should curb any bullish moves in the markets, which, coupled with the Fed’s aggressive expectations, should act as a tailwind for the dollar. In fact, the markets seem convinced that the US central bank will raise interest rates at a faster pace to curb rising inflation.
By contrast, the Bank of England is expected to opt for a more gradual approach to raising interest rates amid growing recession fears. Aside from this, the impasse between the UK and the EU over the Northern Ireland protocol to the Brexit deal could prevent traders from making aggressive bullish bets on sterling. This, in turn, warrants caution before positioning for any significant GBP/USD appreciation move.
No relevant economic data will be released in the UK on Monday and US markets will be closed for the celebration of National Independence Day. However, traders will take St. Louis Fed President James Bullard’s speech as a reference, which could influence the dynamics of the dollar price and give some momentum to the GBP/USD pair.
Technical levels
Source: Fx Street
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