- GBP/USD gained traction on Wednesday and built on the overnight bounce from one-week lows.
- The uptick was solely led by some cross-driven strength stemming from a fall in the EUR/GBP.
- The upside seems limited ahead of Wednesday’s FOMC decision and BoE meeting on Thursday.
The GBP/USD pair finally broke out of its intraday consolidative trading range and refreshed daily tops, around the 1.3930 region during the early European session.
The pair regained some positive traction on Wednesday and is now looking to build on the previous day’s goodish rebound from the 1.3800 neighbourhood, or one-week lows. The uptick lacked any obvious fundamental catalyst and could be solely attributed to some cross-driven strength stemming from a fresh leg down in the EUR/GBP.
However, a combination of factors might hold bulls from placing aggressive bets and keep a lid on any runaway rally for the GBP/USD pair. The British pound is likely to be undermined by the fact that the EU launched legal action against the UK for breaching the NI protocol and the Bank of England Governor Andrew Bailey’s dovish comments.
Bailey said that the central bank is committed to buying bonds at an elevated pace and also sounded cautious about the economic recovery. The market took this as the early sign of a possible downward revision of the central bank’s economic forecast and might cap any meaningful gains for the sterling ahead of the BoE meeting on Thursday.
On the other hand, the US dollar remained well supported by the prospects for a relatively faster US economic recovery and elevated US Treasury bond yields. This, along with expectations for a larger government borrowing and speculations for an uptick in US inflation held the yield on the benchmark 10-year US bond closer to over one-year tops.
That said, expectations that the Fed could take some action to curb any further rise in long-term borrowing cost acted as a headwind for the US bond yields and capped the upside. Hence, the key focus will remain on the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced later during the US session this Wednesday.
Technical levels to watch
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