GBP/USD extends its reversal to 1.2020 in a choppy market session

Sterling’s reversal from the intra-day high of 1.2065 seen in the early European session has extended to the 1.2020 area in a choppy market session, with the European markets picking up, following a negative opening.

Concerns about China and Ukraine are weighing sentiment

Investors’ optimism about the end of the Zero-COVID policy in China faded on Thursday as reports about the exponential growth of infections and their strain on the country’s financial system are casting doubts on a fast recovery of the Chinese Economy.

Beyond that, the rising tensions in Ukraine where the Russian army is shelling heavily Kyiv and other cities after the Kremlin’s refusal to accept Zelenski’s peace plan is weighing risk appetite further, increasing negative pressure on the GBP.

Furthermore, the 0.5% interest rate hike approved by the Bank of England in December, following November’s 0.75% hike, has raised speculation of an easier monetary tightening in 2023 and a lower  Bank Rate peak which is acting as a headwind for the Sterling.

On the other end, the US Dollar is trimming losses after a negative market opening. The US Dollar Index, which measures the value of the Greenback against the most traded currencies, has bounced up from levels right above 104.00, returning to 104.30 tracing the moderate recovery on US Treasury yields.

Technical levels to watch