- GBP/USD witnessed some fresh selling on Tuesday and erased a part of the overnight strong gains.
- A combination of factors assisted the USD to regain traction and exerted some pressure on the pair.
- The optimism over the reopening of the UK economy might help limit the downside ahead of the BoE.
The GBP/USD pair maintained its offered tone through the mid-European session and was last seen hovering near the lower end of its daily trading range, just above mid-1.3800s.
The pair met with some fresh supply on Tuesday and eroded a part of the previous day's strong rally of around 130 pips from the 1.3800 mark, or two-week tops. As investors looked past the disappointing release of US ISM Manufacturing PMI on Monday, the US dollar regained positive traction and was seen as a key factor exerting downward pressure on the GBP/USD pair.
As investors looked past Monday's softer US ISM Manufacturing PMI, investors remain optimistic about the prospects for a relatively faster US economic recovery from the pandemic. The positive narrative revived speculations that the Fed may be forced to raised interest rates sooner rather than later, which, in turn, provided a strong lift to the greenback.
Apart from this, a goodish pickup in the US Treasury bond yields and a generally softer tone around the equity markets further underpinned the safe-haven USD. This, along with the risk posed by the upcoming Scottish elections, weighed on the British pound and further contributed to the GBP/USD pair's intraday decline, though the downside remained cushioned.
The gradual reopening of the UK economy continued acting as a tailwind for the sterling and helped limit the downside for the GBP/USD pair. Moreover, investors also seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the latest monetary policy update by the Bank of England on Thursday.
Hence, it will be prudent to wait for some strong follow-through selling, possibly below the overnight swing lows near the 1.3800 mark, before positioning for any further depreciating move. Market participants now look forward to the second-tier US macro data – Trade Balance and Factory Orders – for some trading impetus during the early North American session.
Technical levels to watch
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