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  • A goodish pickup in the USD demand prompted some fresh selling around GBP/USD on Tuesday.
  • The upbeat US economic outlook, a softer risk tone drove some haven flows towards the USD.
  • Retreating US bond yields did little to cap the USD amid expectations for an earlier Fed rate hike.

The GBP/USD pair maintained its heavily offered tone through the mid-European session and was last seen hovering near the lower end of its daily trading range, around the 1.3825-20 region.

The pair witnessed a dramatic intraday turnaround on Tuesday and dropped nearly 100 pips from the 1.3920 region, or over two-week tops amid the emergence of some fresh buying around the US dollar. Investors remained optimistic about the prospects for a relatively strong US economic growth amid the impressive pave of coronavirus vaccinations. The incoming economic data, including the latest NFP report and Monday’s ISM Services PMI, reinforced the upbeat outlook and continued underpinning the greenback.

Apart from this, a generally softer tone around the US equity futures further benefitted the USD’s safe-haven status and further contributed to the GBP/USD pair’s intraday fall. The combination of supporting factors helped offset the ongoing decline in the US Treasury bond yields, which tend to weigh on the greenback. That said, increasing bets for an earlier Fed rate hike should limit the downside for the US bond yields.

The reflation trade has been fueling speculations about an uptick in US inflation and raised doubts that the Fed will retain ultra-low interest rates for a longer period. This suggests that the path of least resistance for the greenback remains to the upside. This, in turn, supports prospects for a further intraday depreciating move for the GBP/USD pair amid absent relevant market moving economic releases from the US.

Technical levels to watch