- GBP/USD struggles to capitalize on its modest intraday bounce from a one-month low.
- Hawkish Fed expectations help limit the downside for the USD and act as a headwind.
- Speculations that the current BoE rate-hiking cycle is nearing the end contribute to cap.
The GBP/USD pair attracts some buyers near the 1.2000 psychological mark on Tuesday and snaps a three-day losing streak to a one-month low touched the previous day. Spot prices, however, trim a part of the modest intraday gains and retreat to the 1.2025 region during the early European session.
The upbeat US monthly jobs data inspired strong US Dollar recovery momentum from a nine-month low set on Friday stalls amid a modest downtick in the US Treasury bond yields. This is seen as a key factor lending some support to the GBP/USD pair. That said, any meaningful recovery seems elusive, warranting some caution for aggressive bullish traders.
Investors now seem convinced that the Federal Reserve will stick to its hawkish stance for longer and the bets were reaffirmed by the blockbuster US NFP report on Friday. This should act as a tailwind for the US bond yields and lend some support to the USD, which, in turn, should keep a lid on the GBP/USD pair, at least for the time being.
Furthermore, a dovish assessment of the Bank of England (BoE) policy decision last week suggests that the path of least resistance for the GBP/USD pair is the downside. In fact, BoE Governor Andrew Bailey said that inflation will continue to fall this year and more rapidly during the second half of 2023. This raises speculations that the current rate-hiking cycle might be nearing the end and adds credence to the near-term bearish outlook.
Moving ahead, there isn't any relevant market-moving economic data due for release on Tuesday, either from the UK or the US. Hence, the focus will be on Fed Chair Jerome Powell's speech later during the US session. This, along with the US bond yields and the broader risk sentiment, will influence the USD and provide some impetus to the GBP/USD pair.
Technical levels to watch
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