GBP/USD rallies to over one-month peak, eyes mid-1.2200s amid notable USD weakness

The GBP/USD pair builds on last week's rally from the vicinity of the 1.2000 psychological mark and gains positive traction for the third successive day on Monday. The momentum remains uninterrupted through the early North American session and lifts spot prices to over a one-month high, around the 1.2240 region in the last hour.

An intraday turnaround in the global risk sentiment - as depicted by a solid recovery in the US equity futures - drags the safe-haven US Dollar (USD) to its lowest level since February 14, which, in turn, acts as a tailwind for the GBP/USD pair. The USD is further pressured by diminishing odds for a more aggressive policy tightening by the Federal Reserve (Fed), especially after the recent collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank.

In fact, the markets are now pricing in a smaller 25 bps lift-off at the end of a two-day FOMC monetary policy meeting, starting this Tuesday. The US central bank is also expected to start cutting interest rates during the second half of the year, which had led to the recent sharp downfall in the US Treasury bond yields. It is worth recalling that the rate-sensitive 2-year US government bond last week recorded its biggest three-day slump since Black Monday in October 1987.

That said, some repositioning trade ahead of the key central bank event risk pushes the US bond yields high, albeit does little to impress the USD bulls. This, along with the possibility of some short-term trading stops being triggered above the 1.2200 mark, further contributes to the bid tone surrounding the GBP/USD pair. It, however, remains to be seen if the intraday positive move is backed by genuine buying or turns out to be a stop run, warranting some caution for bulls.

In the absence of any major market-moving economic data on Monday, the focus will remain glued to the FOMC decision on Wednesday and the Bank of England policy meeting on Thursday. Apart from this, traders, this week will confront the release of the latest consumer inflation figures from the UK on Wednesday. The crucial macro data, along with the highly-anticipated central bank meetings, will help to determine the near-term trajectory for the GBP/USD pair.

Technical levels to watch