- GBP/USD regains positive traction on Tuesday amid the emergence of fresh USD selling.
- Bets for less aggressive Fed rate hikes continue to weigh on the buck amid a positive risk tone.
- A bleak outlook for the UK economy acts as a headwind for the GBP and caps gains for the pair.
The GBP/USD pair attracts fresh buying on Tuesday and reverses a major part of the previous day's slide to a three-day low. The pair, however, retreats a few pips from the daily peak touched during the first half of the European session and is currently trading just above the 1.2000 psychological mark.
A combination of factors prompts fresh selling around the US Dollar, which, in turn, is seen extending some support to the GBP/USD pair. The global risk sentiment gets a minor lift after Chinese authorities hinted to loosen COVID-19 restrictions, despite a nationwide surge in cases. This is evident from signs of stability in the equity markets and undermines the safe-haven Greenback. Furthermore, expectations that the Fed will slow the pace of its policy tightening exert additional downward pressure on the buck.
In fact, the November Federal Open Committee Market (FOMC) meeting minutes released last week cemented market bets for a relatively smaller 50 bps rate hike in December. This leads to a fresh leg down in the US Treasury bond yields and continues to weigh on the USD. The British Pound, on the other hand, draws support from rising bets for further substantial Bank of England rate hikes. That said, a bleak outlook for the UK economy acts as a headwind for the Sterling and keeps a lid on any meaningful appreciating move for the GBP/USD pair, at least for now.
There isn't any major market-moving macro data due for release from the UK on Tuesday, while the US economic docket features the Conference Board's Consumer Confidence Index. Apart from this, speeches by BoE MPC Member Catherine Mann and Governor Andrew Bailey will be looked upon for some impetus. Traders will also take cues from the broader risk sentiment, which might influence the USD and produce short-term opportunities around the GBP/USD pair.
Technical levels to watch
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