- A strong pickup in the USD demand prompted some selling around GBP/USD on Monday.
- The risk-on mood capped the safe-haven USD and helped limit the downside for the pair.
- Investors now look forward to this week’s US macro data for a fresh directional impetus.
The GBP/USD pair remained on the defensive through the first half of the European session, albeit has managed to recover a few pips from the daily swing low. The pair was last seen trading around the 1.3515-20 region, down less than 0.10% for the day.
The US dollar made a solid comeback on the first trading day of the new year and failed to assist the GBP/USD pair to capitalize on its recent gains recorded over the past two weeks or so. The Fed's hawkish outlook, indicating at least three rate hikes in 2022, along with elevated US Treasury bond yields acted as a tailwind for the greenback.
It is worth recalling that the yield on the benchmark 10-year US government bond recorded the largest yearly increase since 2013 and ended 2021 above the 1.50% threshold. This, along with the worsening COVID-19 situation in the United Kingdom, further undermined the British pound and exerted some downward pressure around the GBP/USD pair.
Britain has been reporting a record number of new COVID-19 cases over the past few days, which could force the government to impose more restrictions. It is worth recalling that the UK Prime Minister Boris Johnson had said last week that ministers would keep the latest data under constant review to see if additional stricter measures are needed.
That said, the underlying bullish tone – as depicted by a generally positive tone around the equity markets – capped gains for the safe-haven greenback. This, in turn, assisted the GBP/USD pair to reverse an intraday slide to sub-1.3500 levels. The attempted recovery, however, lacked bullish conviction amid quiet holiday trading.
Nevertheless, the emergence of some dip-buying at lower levels supports prospects for an extension of the recent upward trajectory. Bulls, however, are likely to wait for a sustained strength beyond the 100-day SMA before placing aggressive bets ahead of this week's important US macro data, including the closely-watched NFP report.
Technical levels to watch
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