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  • GBP/USD recovers further from Monday’s two-week lows amid a subdued USD demand.
  • Rallying US bond yields should help limit the USD downside and keep a lid on the uptick.
  • COVID-19 jitters, negative BoE rate speculations might further collaborate to cap gains.

The GBP/USD pair refreshed daily tops, around the 1.3565-70 region in the last hour, albeit quickly retreated few pips thereafter. The pair was last seen trading just below mid-1.3500s, up around 0.25% for the day.

The pair built on the overnight bounce from mid-1.3400s, or two-week lows and edged higher through the early European session on Tuesday. The US dollar was seen consolidating its recent strong recovery gains from the lowest level in nearly three years and was seen as one of the key factors behind the intraday uptick.

The GBP/USD pair erased its losses recorded on Monday but lacked any strong follow-through buying. The US Treasury bond yields prolonged their recent strong rally amid hopes for additional US fiscal stimulus. This, in turn, should help limit any meaningful USD slide and cap the upside for the major, at least for now.

Increasing bets that President-elect Joe Biden would push for a more aggressive spending plan in 2021 and led a sudden pickup in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond saw its biggest weekly rise since June last week and has now jumped to the highest level since March 2020.

Apart from this, renewed speculations that the BoE will push interest rates below zero might also hold the GBP bulls from placing any aggressive bets. The market expectations resurfaced following BoE MPC member Silvana Tenreyro’s comments on Monday, saying that the work on the feasibility of negative rates is still in progress.

This comes on the back of growing worries about the potential economic fallout from the continuous surge in new coronavirus cases and the imposition of a third nationwide lockdown in the UK. Hence, any subsequent positive move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch