GBP/USD pulls back from session highs and returns to 1.3050

Sterling’s bullish reaction witnessed on the early US session has lost steam right ahead of 1.3100 and the pair has returned to the mid-range of 1.3000.

Pound trims losses as US dollar weakens

Cable appreciated on Tuesday, to regain some of the ground lost after a three-day decline from October’s peak, at 0.3175. The pound took advantage of dollar weakness, with the USD Index retreating about 0.25% with the market sentiment improving moderately.

With all eyes on the Brexit negotiations, the news about the talks' resumption and the brighter perspectives of a trade deal with the EU have failed to offer a relevant impulse to the GBP/USD, and only a moderate push against the euro. The economic challenges ahead for the UK, with COVID-19 cases surging to record levels and the Bank of England, expected to introduce negative rates in January seem to be weighing on GBP demand.

Beyond that, the uncertainty about the US presidential elections, only one week ahead of the voting day is prompting a cautious mood among the investors, which reflects on sideways markets.

GBP/USD seen between 1.2900 and 1.3120 in the near-term - UOB

On the technical domain, the FX analysis team at UOB expects the pair to remain capped below 1.3120 over the short-term: “We highlighted yesterday (26 Oct, spot at 1.3050) that ‘upward momentum is beginning to ease’ and added, ‘GBP has to move and stay above 1.3120 within these 1 to 2 days or the odds for further GBP strength would diminish quickly’. GBP subsequently came close to breaching our ‘strong support’ level at 1.2990 (low of 1.2993) and closed on a soft note at 1.3022 (-0.13%). Upward momentum has deteriorated further and further GBP appears unlikely. GBP is more likely to consolidate and trade between 1.2900 and 1.3120 for now.”

Technical levels to watch