- GBP / USD gained positive traction for the third consecutive session on Monday.
- A modest USD weakness turned out to be a key factor that propelled the pair higher.
- A combination of factors should help limit USD losses and put a cap on the upside.
The pair GBP/USD it quickly recovered almost 60 pips from the session lows touched at the beginning of the European session and spiked to multi-day highs around the 1.3585-90 region in the last hour.
The pair drew some buying on dips near the 1.3530 region on Monday and built on last week’s recovery move from the 1.3400 zone, or the lowest level since December 2020. This marked the third day in a row. of a positive move for the GBP / USD pair and was exclusively sponsored by a modest weakness of the US dollar.
In fact, the key USD index declined further from the year-long highs hit last Thursday and extended some support to the GBP / USD pair. That said, a combination of factors should help limit deeper losses for the dollar and keep any significant upside potential for the pair in check, justifying some caution for aggressive bull traders.
Investors appear to be convinced that the Fed will begin reducing its massive pandemic-era stimulus as early as November. Markets also appear to have begun to appreciate the prospect of a Fed interest rate hike in 2022. This, coupled with a good recovery in US Treasury yields, should act like a windfall. tail for the USD.
Aside from this, the downside momentum should also extend some support to the safe-haven dollar. Concerns that the Evergrande Group debt crisis could spread throughout China’s real estate sector dampened investors’ appetite for perceived riskier assets. This was evident from a generally weaker tone in equity markets.
On the other hand, the current fuel crisis in the UK should prevent traders from placing aggressive bullish bets on the British pound. On top of this, new tensions between Britain and France over post-Brexit fishing rights could work further to limit GBP / USD gains, at least for the time being.
Therefore, it will be prudent to wait for a strong follow-up buy before confirming that the GBP / USD pair has bottomed out in the short term and positioning yourself for possible additional gains. There is no major economic data to move the market, to be released on Monday from either the UK or the US, leaving the pair at the mercy of USD price dynamics.
Technical levels
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