- GBP / USD drew some buying on the dips on Monday and turned positive for the second day in a row.
- The rally lacked an obvious catalyst and is likely to remain limited amid modest USD strength.
- Sustained strength is needed beyond 1.4200 to support the prospects for additional earnings.
The pair GBP/USD it managed to bounce around 60-65 pips from the lows touched at the beginning of the European session and updated daily highs, around the 1.4170-75 region in the last hour.
The British pound started the new week on the right foot and was affected by a combination of factors. Doubts about the UK government’s plan to reopen the economy on June 21 in light of the spread of the so-called Delta variant turned out to be one of the key factors undermining the British pound during the first half of the trade action.
Aside from this, signs that Britain’s relationship with the European Union has been deteriorating put additional downward pressure on the GBP / USD pair. Ahead of the Brexit talks on the Northern Ireland protocol later this week, the EU ambassador to the UK said on Sunday that the level of trust between the two powers was low.
This, along with a modest rally in the US dollar, contributed to the initial decline in the GBP / USD pair. While with investors already digesting the mixed monthly employment report on Friday, the dollar found some support in comments from US Treasury Secretary Janet Yellen over the weekend, saying that higher interest rates they would be an advantage to the Fed.
It’s worth remembering that the softer NFP figures had dampened market expectations that the Fed would start reducing its asset purchases sooner rather than later. However, Yellen’s remarks reignited talks about the overhaul amid concerns about rising inflationary pressures, which, in turn, acted as a tailwind for US bond yields.
Despite the negative factors, the GBP / USD pair once again showed some resistance near the 1.4100 level and attracted some buying on the dips on Monday. The subsequent positive move supports the prospects for additional earnings, although it will be prudent to wait for sustained strength beyond 1.4200 before placing further bullish bets.
There is no major market-moving economic data released on Monday, either from the UK or the US Therefore, US bond yields will continue to play a key role in influencing dynamics. of USD prices. Traders could follow the signs of incoming Brexit-related headlines to seize some short-term opportunities.