GBP/USD rebounds from YTD low, climbs to mid-1.3000s amid modest USD pullback

The GBP/USD pair recovered over 40 pips from the daily low and climbed to a fresh daily high, around mid-1.3000s during the early part of the European session.

The pair managed to defend the 1.3000 psychological mark and reversed an early dip to the lowest level since November 2020 touched earlier this Monday. A goodish recovery in the risk sentiment - as depicted by a positive tone around the equity markets - failed to assist the safe-haven US dollar to capitalize on its modest intraday gains closer to the YTD high. This, in turn, was seen as a key factor that extended support to the GBP/USD pair.

Investors turned optimistic amid reviving hopes for a diplomatic solution to end the war in Ukraine. In fact, Ukrainian negotiator Mykhailo Podolyak said that Russia is beginning to talk constructively and we will achieve some results in a matter of days. Moreover, a Russian delegate to the talks, Leonid Slutsky noted that they had made significant progress and the delegations could soon reach draft agreements.

The British pound drew additional support from expectations that the Bank of England will hike interest rates at its policy meeting later this week. That said, bets for an imminent policy tightening by the Fed continued pushing the US bond yields higher and acted as a tailwind for the buck and capped gains for the GBP/USD pair. Investors might also prefer to wait on the sidelines ahead of the FOMC/BoE monetary policy decisions this week.

In the meantime, fresh developments surrounding the Russia-Ukraine saga will influence the broader market risk sentiment. This, along with the US bond yields, will drive the USD demand and provide some impetus to the GBP/USD pair amid absent relevant market-moving economic releases, either from the UK or the US. Nevertheless, the emergence of some dip-buying near a technically significant level warrants some caution for aggressive bearish traders.

Technical levels to watch