- GBP/USD reversed an intraday dip to mid-1.3500s amid sustained USD selling.
- The imposition of fresh COVID lockdowns in the UK might cap any strong gains.
The GBP/USD pair managed to rebound around 50 pips from daily swing lows, with bulls making a fresh attempt to build on the momentum beyond the 1.3600 mark.
The US dollar struggled to capitalize on the previous day’s attempted recovery move, instead met with some fresh supply on Tuesday amid the underlying bullish tone in the financial markets. Despite concern about surging COVID-19 cases and uncertainty about US runoff elections in Georgia, investors remained optimistic about a strong global economic recovery in 2021. This, in turn, continued weighing on the safe-haven greenback and was seen as a key factor that extended some support to the GBP/USD pair.
The greenback was further pressured by the likelihood of additional US fiscal stimulus measures and expectations that the Fed will keep interest rates lower for a longer period. Meanwhile, the GBP bulls largely shrugged off worries over the imposition of fresh lockdowns to curb an unprecedented level of COVID-19 infection in the UK and the exclusion of services sector from the Brexit agreement. In fact, the UK reported new confirmed cases in excess of 50K for the seventh straight day on Monday.
A third national lockdown until mid-February is predicted to slow the economic recovery and prompt the Bank of England to ease monetary policy further. The negative factor, to a larger extent, was offset after the UK finance minister, Rishi Sunak announced further support for businesses to cushion the blow from virus crisis. This, in turn, provided a modest lift to the British pound and allowed the GBP/USD pair to reverse an intraday dip to the 1.3550 region.
There isn’t any major market-moving economic data due for release from the UK and the US economic docket highlights the only release of ISM Manufacturing PMI. Apart from this, developments surrounding the coronavirus saga and the broader market risk sentiment will influence the USD price dynamics. This could provide some impetus and allow traders to grab some short-term opportunities.
Technical levels to watch
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