GBP/USD flirts with session lows, around 1.3900 mark
|- GBP/USD witnessed fresh selling on Tuesday and eroded a part of the overnight strong gains.
- The Fed’s hawkish turn, rebounding US bond yields underpinned the USD and exerted pressure.
- The downside is likely to remain limited as the focus remains on the BoE meeting on Thursday.
The GBP/USD pair maintained its offered tone heading into the European session and was last seen hovering near the lower end of its daily trading range, around the 1.3900 mark.
The pair struggled to capitalize on the previous day's strong intraday rally of nearly 150 pips from two-month lows and faced rejection near 100-day SMA on Tuesday. Following the previous day's modest pullback, the US dollar was back in demand and remained well supported by the Fed's sudden hawkish turn last week. This, in turn, was seen as a key factor that exerted some fresh downward pressure on the GBP/USD pair.
It is worth recalling that the Fed surprised investors at the end of June policy meeting and brought forward its timetable for the first post-pandemic interest rate hikes. The so-called dot plot pointed to two rate hikes by the end of 2023 as against policymakers projection for no increase until 2024 in the March meeting. This, along with the overnight solid rebound in the US Treasury bond yields, underpinned the USD.
On the other hand, concerns about the EU-UK collision over Norther Ireland protocol held traders from placing aggressive bullish bets around the British pound. Adding to this, worries that the decision to delay the final stage of easing lockdown measures could hinder the nascent UK economic recovery further undermined the sterling. That said, expectations for a hawkish tilt from the Bank of England should help limit the downside.
Hence, the key focus will remain on the upcoming BoE meeting on Thursday. This makes it prudent to wait for some strong follow-through selling before traders start positioning for any further depreciating move amid absent relevant UK economic data. Meanwhile, the US economic docket – featuring the second-tier releases of Existing Home Sales and Richmond Manufacturing Index, might also do little to provide any impetus to the GBP/USD pair.
Technical levels to watch
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