- GBP/USD witnessed a bearish gap opening on Monday amid resurgent USD demand.
- The worsening situation in Ukraine provided strong boost to the safe-haven greenback.
- A combination of factors capped the USD and assisted the pair to pare intraday losses.
The GBP/USD pair recovered a major part of its intraday losses and was last seen trading near the 1.3375 region during the early European session, down around 0.20% for the day.
The pair opened with a bearish gap on the first day of a new week amid a broad-based US dollar strength, bolstered by the weekend developments surrounding the Ukraine crisis. Western nations imposed new sanctions on Russia for its invasion of Ukraine, including blocking some banks from the SWIFT international payments system.
President Vladimir Putin upped the ante and put nuclear-armed forces on high alert on Sunday, fueling fears about a further escalation of the East-West conflict. This, in turn, triggered a fresh wave of the global risk-aversion trade, which forced investors to take refuge in traditional safe-haven assets and benefitted the buck.
That said, optimism over the Ukraine-Russia negotiations, which would reportedly start on Monday at the Belarusian-Ukrainian border, led to some stability in the financial markets. This, along with diminishing odds for a 50 bps Fed rate hike move in March, capped gains for the USD and extended support to the GBP/USD pair.
The worsening situation in Ukraine now seems to have dashed hopes for a more aggressive policy response by the Fed to combat stubbornly high inflation. Apart from this, the global flight to safety triggered a steep decline in the US Treasury bond yields and acted as a headwind for the greenback, at least for the time being.
In the absence of any major market-moving economic releases, either from the UK or the US, the market focus will remain on fresh developments surrounding the Russia-Ukraine saga. This, along with the US bond yields, will influence the USD price dynamics and produce short-term trading opportunities around the GBP/USD pair.
Technical levels to watch
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