- GBP/USD showed some resilience below the 1.3100 mark and staged a goodish intraday bounce.
- A turnaround in the risk sentiment prompted profit-taking around the USD and extended support.
- The worsening situation in Ukraine should act as a tailwind for the USD and cap gains for the pair.
The GBP/USD pair quickly reversed an early European session dip to sub-1.3100 levels, or the lowest since November 2020 and climbed back closer to the daily high in the last hour. The pair was last seen trading around the 1.3125 region, up nearly 0.20% for the day.
A turnaround in the global risk sentiment - as depicted by a goodish rebound in the equity markets - prompted some profit-taking around the safe-haven US dollar. This, in turn, was seen as a key factor that extended some support to the GBP/USD pair and behind a sudden spike over the past hour or so. Apart from this, expectations that the Bank of England (BoE) would go ahead with hiking rates at its March meeting further benefitted the British pound and remained supportive.
That said, any meaningful positive move still seems elusive amid a further escalation in the Russia-Ukraine war. In fact, Russian jets continued to drop bombs near the Ukrainian capital Kyiv and the third round of ceasefire talks ended without much progress. Apart from this, fears of a major inflationary shock for the global economy should keep a lid on any optimistic move in the markets and continue underpinning the greenback's status as the global reserve currency.
Against the backdrop of worries about the economic fallout from Russia's invasion of Ukraine, the recent monster gains in commodity prices have raised the risk of stagflation. This, in turn, triggered a sharp spike in the US Treasury bond yields, which supports prospects for the emergence of fresh USD buying at lower levels. Hence, it will be prudent to wait for strong follow-through buying before traders start positioning for any further gains around the GBP/USD pair.
In the absence of any major market-moving economic releases, either from the UK or the US, the focus will remain glued to fresh developments surrounding the Russia-Ukraine saga. Apart from this, the broader market risk sentiment and the US bond yields will influence the USD price dynamics. This, in turn, should provide some impetus to the GBP/USD pair and allow traders to grab some short-term opportunities.
Technical levels to watch
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