- GBP/USD came under fresh selling pressure on Tuesday amid a broad-based USD strength.
- Surging US bond yields, the risk-off impulse lifted the safe-haven USD to over one-month tops.
- The lack of a strong follow-through selling warrants some caution for aggressive bearish traders.
A strong pickup in the USD demand dragged the GBP/USD pair to fresh daily lows, around the 1.3660 region during the first half of the European session.
Following a modest uptick to the 1.3715 area, the GBP/USD pair witnessed some fresh selling on Tuesday and reversed the previous day's modest gains amid a broad-based US dollar strength. The ongoing upsurge in the US Treasury bond yields pushed the USD Index to the highest level since August 20. This, in turn, was seen as a key factor exerting downward pressure on the major.
In fact, the yield on the benchmark 10-year US government bond shot to the highest level since June 17 amid prospects for an early policy tightening by the Fed. It is worth recalling that the Fed last week hinted that it will soon begin rolling back its massive pandemic-era stimulus. Adding to this, the so-called dot plot showed policymakers' inclination to raise interest rates in 2022.
The market expectations were reinforced by the overnight comments from Fed Governor Lael Brainard, New York Fed President John Williams and Chicago Fed President Charles Evans. Apart from this, a turnaround in the global risk sentiment – amid persistent worries about China Evergrande Group's unsolved debt crisis – further benefitted the greenback's relative safe-haven status.
On the other hand, the British pound was pressured by increasing signs of the fuel crisis in the United Kingdom. Fears that a driver shortage would hit fuel supply led to panic buying and long queues at many petrol stations. The UK is estimated to be short of more than 100,000 lorry drivers, which caused problems for a range of industries in recent months.
Despite the negative factors, the GBP/USD pair, so far, has managed to hold its neck just above the overnight swing lows. This makes it prudent to wait for some follow-through selling before positioning for any further depreciating move. In the absence of any major market-moving economic releases from the UK, the USD price dynamics will influence the intraday momentum.
Later during the early North American session, investors will take cues from Fed Chair Jerome Powell's testimony before the Senate Banking Committee. This, along with the release of the Conference Board's Consumer Confidence Index and the US bond yields, will drive the USD demand and produce some trading opportunities around the GBP/USD pair.
Technical levels to watch
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