- GBP/USD witnessed some intraday selling on Monday, though lacked follow-through.
- A combination of factors acted as a tailwind for the USD and exerted some pressure.
- Dovish BoE, Brexit worries weighed on the sterling and contributed to the selling bias.
- The attempted recovery from mid-1.3400s runs the risk of fizzling out rather quickly.
The GBP/USD pair quickly recovered around 35 pips from early European session lows, albeit whilst remaining well below the key 1.3500 psychological mark.
The US dollar kicked off the new week on a positive note amid a solid rebound in US Treasury bond yields. Despite the Fed's dovish outlook, investors seem convinced that the US central bank would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. Apart from this, the cautious market mood further underpinned the greenback's relative safe-haven status and exerted some downward pressure on the GBP/USD pair.
On the other hand, the British pound was weighed down by the Bank of England's surprise decision last week to hold interest rates steady. This comes on the back of worries that the UK government will trigger Article 16 of the Northern Ireland Protocol further acted as a headwind for the sterling. The GBP/USD pair, however, managed to find decent support near mid-1.3400s, though the attempted recovery lacked follow-through or bullish conviction.
The fundamental backdrop seems tilted firmly in favour of bearish traders and any subsequent move up might still be seen as a selling opportunity. There isn't any major market-moving economic data due for release on Monday, either from the UK or the US. This further makes it prudent to wait for a sustained strength beyond the 1.3500 mark before confirming that the GBP/USD pair might have bottomed out and be positioning for any further appreciating moves.
Later during the US session, traders will take cues from Fed Chair Jerome Powell's remarks at an online conference. This, along with the US bond yields and the broader market risk sentiment, will drive the USD demand. Apart from this, BoE Governor Andrew Bailey's comments will influence the GBP and provide some impetus to the GBP/USD pair. The key focus, however, will remain on Wednesday's release of the latest US consumer inflation figures.
Technical levels to watch
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