- A sudden pickup in the USD demand failed to assist GBP/USD to capitalize on its early gains.
- Diminishing odds for an earlier tightening by the Fed capped the upside for the greenback.
- The optimism over the easing of COVID-19 restrictions in the UK underpinned the sterling.
The GBP/USD pair dropped to fresh daily lows, around the 1.3835 region during the mid-European session, albeit quickly recovered few pips thereafter. The pair was last seen trading with modest intraday gains, just above mid-1.3800s.
The pair built on its recent bounce from the lowest level since mid-April and gained some follow-through traction through the first half of the trading action on Tuesday. The momentum pushed the GBP/USD pair to one-week tops, though ran out of steam near the 1.3900 mark amid a sudden pickup in the US dollar demand.
The USD found some support from the emergence of some heavy selling around the shared currency in reaction to the disappointing release of ZEW survey results. Apart from this, concerns about the spread of the highly contagious Delta variant of the coronavirus further acted as a tailwind for the safe-haven greenback.
The GBP/USD pair retreated nearly 65 pips from the daily swing highs but managed to attract some dip-buying at lower levels and was supported by a combination of factors. Investors now seem convinced that the Fed will wait longer before deciding to tighten its monetary policy, which, in turn, capped gains for the USD.
On the other hand, the UK Prime Minister Boris Johnson's announcement on Monday that all restrictive measures would be lifted on July 19 continued underpinning the British pound. This was seen as another that extended some support to the GBP/USD pair and helped limit any meaningful slide, at least for the time being.
Market participants now look forward to the US economic docket, highlighting the release of ISM Services PMI. The data might influence the USD price dynamics and provide some impetus to the GBP/USD pair. The key focus, however, will remain on Wednesday's release of the FOMC June monetary policy meeting minutes.
Technical levels to watch
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