- GBP/USD hit a new multi-week high amid the onset of fresh dollar selling.
- An intraday positive shift in risk sentiment weighed on the greenback as a haven.
- Brexit woes could cap sterling’s gains ahead of the crucial FOMC decision.
The pair GBP/USD attracted some buying on the dips near the 1.1960 area on Monday and spiked to a nearly three-week high during the mid-European session. It was last seen trading at 1.2065-1.2070, up more than 0.50% on the day.
Better-than-expected UK PMI data reaffirmed market bets on a 50 basis point rate hike by the Bank of England in August and continued to act as a tailwind for sterling. Elsewhere, the positive shift in global risk sentiment – as evidenced by the strong intraday rally in equity markets – weighed on the safe-haven US dollar. In fact, the dollar index languished near its lowest level since July 5 hit on Friday, which in turn was seen as another factor that provided a good boost to the GBP/USD pair.
That said, growing concerns about the global economic slowdown could dampen any bullish moves in the markets. Aside from this, a nice rebound in US Treasury yields could offer support to the dollar as a safe haven. Investors also remain concerned that the British government’s controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union amid the ongoing cost-of-living crisis. This could act as a sterling headwind and help limit any significant GBP/USD upside.
Investors may also be reluctant to make directional bets, preferring to wait for the outcome of Wednesday’s crucial FOMC policy meeting. The Fed is expected to raise interest rates by 75 basis points, although recession fears could force the US central bank to slow the pace of its aggressive policy tightening. This, in turn, suggests that the Fed’s policy outlook would now play a key role in influencing dollar price dynamics and helping investors determine the short-term path of the GBP/USD pair.
Meanwhile, broader market risk sentiment and US bond yields will boost dollar demand amid the absence of relevant economic releases for the US market on Monday. Therefore, it remains to be seen whether the GBP/USD pair is able to capitalize on the positive move or is met with fresh supply at higher levels. However, acceptance above the horizontal resistance at 1.2045 could be seen as a trigger for intraday traders and could have already set the stage for a further short-term appreciation move.
Technical levels
Source: Fx Street
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