- GBP/USD gains some traction on Tuesday amid a modest USD pullback from a 20-year high.
- Worries about the ballooning UK debt could act as a headwind for sterling and cap the upside.
- Aggressive Fed rate hike bets should limit the USD losses and warrant some caution for bulls.
The GBP/USD pair attracts some buying on Tuesday and maintains its bid tone above the 1.0800 mark through the early European session.
A combination of factors triggers a modest US dollar pullback from a new two-decade high touched the previous day, which, in turn, is seen acting as a tailwind for the GBP/USD pair. The risk-on impulse, along with retreating US Treasury bond yields, prompts traders to take some profits off their bullish positions around the safe-haven greenback.
The British pound, on the other hand, draws some support from the overnight special statement from the Bank of England, saying that it will not hesitate to change interest rates as necessary. The BoE added that it is monitoring developments in financial markets very closely, especially after the recent free-fall in the GBP/USD pair to an all-time low.
Despite the aforementioned supporting factors, the GBP/USD pair, so far, has been struggling to gain any meaningful traction. The lack of confidence in the UK government’s ability to manage the ballooning debt, especially after the announcement of a mini-budget on Friday, continues to act as a headwind for sterling and capping the upside.
Furthermore, the prospects for a more aggressive policy tightening by the Federal Reserve should limit any deeper fall for the US bond yields and offer some support to the greenback. This might further contribute to keeping a lid on any meaningful gains for the GBP/USD pair, warranting some caution for aggressive bullish traders.
Nevertheless, it is possible that the steep decline to Monday's deep 1.0350 lows could mark the final stage of a bearish exhaustion move – a sort of exagerated market blow off to an intermediate or longer-term bottom. This often happens when price accelerates its descent and breaks down out of the confines of a falling channel as happened to cable on Friday, September 23, when it broke out of a channel it has been in since the start of the year. It is still too early to be sure but traders ought to be aware of the possibility. It will take a few more days – weeks to be certain – if the pair has found a bottom and is reversing onto a more sustainable recovery path.
There isn't any major market-moving UK economic released due on Tuesday, leaving the GBP/USD pair at the mercy of the USD price dynamics. Hence, the focus now shifts to Fed Chair Jerome Powell's speech at an event in Paris. This, along with the US macro data, will drive the USD demand and provide some impetus to the GBP/USD pair.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD traders seem non-committed around 0.6500 amid mixed cues
AUD/USD extends its consolidative price move just above 0.6500 on Friday. The RBA's hawkish and upbeat market mood supports the Aussie, though mixed Australian PMI prints fail to inspire bulls. Moreover, bets for a slower Fed rate-cut path continue to fuel the post-US election USD rally and cap the currency pair.
USD/JPY slides to 154.00 as higher Japanese CPI fuels BoJ rate-hike bets
USD/JPY languishes near 154.00 following the release of a slightly higher-than-expected Japan CPI print, which keeps the door open for more rate hikes by the BoJ. That said, the risk-on mood, along with elevated US bond yields, could act as a headwind for the lower-yielding JPY and limit losses for the pair amid a bullish USD, bolstered by expectations for a less dovish Fed and concerns that Trump's policies could reignite inflation.
Gold price advances to near two-week top on geopolitical risks
Gold price touched nearly a two-week high during the Asian session as the worsening Russia-Ukraine conflict benefited traditional safe-haven assets. The weekly uptrend seems unaffected by bets for less aggressive Fed policy easing, sustained USD buying and the prevalent risk-on environment
Ethereum Price Forecast: ETH open interest surge to all-time high after recent price rally
Ethereum (ETH) is trading near $3,350, experiencing an 10% increase on Thursday. This price surge is attributed to strong bullish sentiment among derivatives traders, driving its open interest above $20 billion for the first time.
A new horizon: The economic outlook in a new leadership and policy era
The economic aftershocks of the COVID pandemic, which have dominated the economic landscape over the past few years, are steadily dissipating. These pandemic-induced economic effects are set to be largely supplanted by economic policy changes that are on the horizon in the United States.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.