GBP/USD Forecast: Pound recovery unlikely in current risk-averse environment

GBP/USD has started the new week on the back foot pressured by another bout of flight to safety amid escalating geopolitical tensions. The pair is likely to face additional bearish pressure in case sellers drag it below 1.3340. 

Over the weekend, the UK, alongside the EU and the US, decided to exclude some Russian financial institutions from the SWIFT system. Additionally, the UK announced early Monday that it will prohibit any UK natural or legal persons from undertaking financial transactions involving the Central Bank of Russia. On Sunday, Russian President Vladimir Putin put deterrent forces, including nuclear arms, at the highest threat level.

As delegations from Russia and Ukraine prepare for talks at the Belarus border, the Ifax news agency reported that Russia was interested in coming to an agreement with Ukraine as soon as possible. On a separate note, Russian forces have reportedly gained control of the Ukrainian cities of Berdyanks and Enerhodar. 

The market reaction to geopolitics since last week has been straightforward and predictable. The greenback outperforms major European currencies when safe-haven flows dominate the action and it loses strength when market participants turn optimistic – in this case during a de-escalation of the conflict. As things currently stand, a diplomatic solution to the Russia-Ukraine war seems unlikely, suggesting that the dollar is likely to continue to be preferred over the British pound, at least in the near term.

Later in the session, the ISM Chicago will release the February Purchasing Managers Index report but it would be surprising to see a noticeable market reaction to this data. 

GBP/USD Technical Analysis

Following the bearish opening gap, GBP/USD seems to have met interim support at 1.3340. If that level turns into resistance, the pair could decline toward 1.3300 (psychological level) and 1.3280 (static level, multi-month low) afterwards.

On the flip side, 1.3400 (psychological level) aligns as initial resistance before 1.3430 (static level, 20-period SMA on the four-hour chart). A daily close above the latter is likely to attract buyers and open the door for an extended rebound toward 1.3500.