- GBP/USD kicked off the new week on a positive note amid the emergence of fresh USD selling.
- The recent decline in the US bond yields and a positive risk tone weighed on the safe-haven buck.
- Hawkish Fed expectations should limit any further USD losses and cap the upside for the major.
The GBP/USD pair built on its modest intraday gains and climbed to a fresh daily high, around the 1.2275-1.2280 region during the mid-European session.
Against the backdrop of the post-FOMC slide in the US Treasury bond yields, a generally positive risk tone exerted some downward pressure on the safe-haven US dollar on Monday. This, in turn, was seen as a key factor that assisted the GBP/USD pair to regain positive traction and recover a part of Friday's losses. That said, any meaningful recovery move still seems elusive, warranting caution for aggressive bullish traders.
Investors remain concerned that a more aggressive move by major central banks to curb inflation would pose challenges to global economic growth. This should keep a lid on any optimistic move in the markets, which, along with hawkish Fed expectations should act as a tailwind for the buck. In fact, the markets seem convinced that the US central bank would hike interest rates at a faster pace to tame soaring inflation.
In contrast, the Bank of England is expected to opt for a more gradual approach to raising interest rates amid growing recession fears. Apart from this, the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement might hold back traders from placing aggressive bullish bets around the British pound. This, in turn, warrants caution before positioning for any meaningful appreciating move for the GBP/USD pair.
There isn't any relevant economic data due for release from the UK on Monday and the US markets will be closed in observance of Juneteenth National Independence Day. Traders, however, will take cues from a scheduled speech by St. Louis Fed President James Bullard, which might influence the USD price dynamics and provide some impetus to the GBP/USD pair.
Technical levels to watch
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