- GBP/USD has failed to close in positive territory on Monday.
- Dollar valuation is likely to continue to drive GBP/USD's action.
- FOMC Chairman Jerome Powell will testify before the US Senate Banking Committee.
GBP/USD has lost its traction in the late American session and ended up closing in negative territory on Monday but managed to gather recovery momentum early Tuesday. The dollar's market valuation continues to impact GBP/USD's movements and the pair could find it difficult to extend its rebound unless the greenback stays under selling pressure.
Falling US Treasury bond yields are weighing on the dollar as investors adopt a cautious stance while trying to figure out how the new coronavirus variant will affect global economic activity. At the time of press, the US Dollar Index was down 0.37% on the day at 95.83 and the benchmark 10-year US Treasury bond yield was nearly 3% lower at 1.441%.
In an interview with the Financial Times, Moderna’s Chief Stéphane Bancel said that they see current vaccines being less effective against Omicronv than previous variants. Vaccine producers reportedly need around 100 days to adjust their vaccines.
Later in the day, FOMC Chairman Jerome Powell will testify before the US Senate Committee on Banking, Housing, and Urban Affairs on coronavirus and CARES Act. According to Powell's prepared statement, the Fed thinks that the new variant creates uncertainty surrounding the inflation outlook.
In case Powell notes that they will prioritize controlling inflation despite the potential negative impact of Omicron on the economic outlook, the dollar could regain its strength and limit GBP/USD's upside. On the other hand, the greenback is likely to continue to suffer losses if Powell signals that they will remain patient regarding the policy tightening while waiting to make sure that the new variant will not derail the economic recovery.
GBP/USD Technical Analysis
The pair is currently trading near the static resistance that seems to have formed at 1.3360. In case this level turns into support, additional gains toward 1.3380 (50-period SMA on the four-hour chart), 1.3400 (psychological level) and 1.3420 (100-period SMA) could be witnessed.
On the downside, 1.3320 (20-period SMA) aligns as initial support before 1.3300 (psychological level) and 1.3280 (2021-low).
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