GBP/USD rebounds from its lowest level since March 2020, lacks follow-through buying
|- A dramatic USD turnaround from a 20-year high prompts some short-covering around GBP/USD.
- Hawkish Fed expectations, rising US bond yields and the risk-off mood should limit the USD losses.
- The UK’s gloomy economic outlook suggests that the attempted recovery is likely to be short-lived.
The GBP/USD pair stages a goodish bounce from the 1.1650-1.1645 region, or its lowest level since March 2020 touched earlier this Monday. The pair hits a fresh daily high during the early North American session, though lacks follow-through buying and is currently placed just above the 1.1700 mark.
A dramatic US dollar turnaround from a fresh 20-year high is seen as a key factor that prompted some intraday short-covering around the GBP/USD pair. In the absence of any fundamental catalyst, the USD pullback could be solely attributed to some profit-taking and is more likely to remain cushioned amid hawkish Fed expectations.
The bets were reaffirmed by Fed Chair Jerome Powell's remarks on Friday, signalling that interest rates would be kept higher for longer to bring down inflation. In fact, the markets are currently pricing in a greater chance of a 75 bps Fed rate hike in September. This is reinforced by a further rise in the US Treasury bond yields.
Apart from this, the prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - supports prospects for the emergence of some dip-buying around the safe-haven buck. This, along with a bleak outlook for the UK economy, warrants some caution before confirming that the GBP/USD pair has formed a bottom.
The fundamental backdrop still seems tilted firmly in favour of bearish traders, suggesting that any subsequent recovery could be seen as a selling opportunity and runs the risk of fizzling out rather quickly. The market focus now shifts to the release of the closely-watched US monthly jobs report, popularly known as NFP on Friday.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.