- GBP/USD defended the 1.3500 mark and attracted some buying on the first day of a new week.
- Retreating US bond yields acted as a headwind for the USD and extended support to the major.
- Fresh Brexit tensions held back bulls from placing aggressive bets and capped any further gains.
The GBP/USD pair quickly retreated a few pips from the daily high touched in the last hour and was last seen trading with modest intraday gains, around the 1.3530-1.3535 region.
Having defended the key 1.3500 psychological mark, the GBP/USD pair attracted some buying on the first day of a new week and recovered a part of Friday's heavy losses. The US dollar struggled to capitalize on the post-FOMC bounce from a two-and-half-week low amid retreating US Treasury bond yields. This, in turn, was seen as a key factor that extended some support to the major.
That said, renewed speculations for a larger Fed rate hike at the March policy meeting should act as a tailwind for the US bond yields and favour the USD bulls. This, along with fresh tensions over the Northern Ireland Protocol of the Brexit agreement should undermine the British pound and keep a lid on any meaningful upside for the GBP/USD pair, at least for the time being.
Meanwhile, the price action now suggests that the markets have digested a more hawkish Bank of England decision last week, wherein four MPC members voted for an aggressive 50 bps hike in borrowing costs. This, in turn, favours bearish traders and supports prospects for the emergence of some selling at higher levels, warranting caution before positioning for any further gains.
In the absence of any major market-moving economic releases, either from the UK or the US, leaving the GBP/USD pair at the mercy of the USD price dynamics. Hence, traders might take cues from the US bond yields, which, along with the broader market risk sentiment, will drive the USD demand. Apart from this, Brexit-related headlines should provide some impetus to the major.
Technical levels to watch
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