- GBP/USD witnessed some short-covering move on Monday amid a modest USD bullish.
- A turnaround in the risk sentiment prompted profit-taking around the safe-haven USD.
- The Fed’s hawkish shifts should help limit the USD downside and cap gains for the pair.
The GBP/USD pair built on its steady intraday ascent and climbed to the 1.3900 neighbourhood, or fresh daily tops during the mid-European session.
The pair staged a solid rebound of over 100 pips from the 1.3785 region and for now, seems to have stalled the post-FOMC downfall to the lowest level since mid-April. The strong positive move on the first day of a new trading week assisted the GBP/USD pair to snap six consecutive days of the losing streak and erase a major part of its losses recorded on Friday.
As investors digested a sudden hawkish turn by the Fed, a sharp turnaround in the global risk sentiment prompted some profit-taking around the safe-haven US dollar. This, in turn, provided a goodish lift to the GBP/USD pair. That said, a combination of factor might hold traders from placing aggressive bets and keep a lid on any strong gains for the major.
The Fed’s signal that it might raise interest rates at a much faster pace than anticipated previously should continue to act as a tailwind for the greenback. Apart from this, concerns about the EU-UK collision over Norther Ireland protocol and the UK government’s decision to delay the final stage of easing lockdown might also cap gains for the GBP/USD pair.
This makes it prudent to wait for some strong follow-through buying before confirming that the GBP/USD pair has bottomed out in the near term. In the absence of any major market-moving economic releases, the USD price dynamics might continue to play a key role in influencing the GBP/USD pair and produce some short-term trading opportunities.
Technical levels to watch