GBP/USD recovers early lost ground to one-week lows, steadies near 1.3670-75 area

• GBP/USD stalled its intraday decline and recovered swiftly from the 1.3600 neighbourhood.
• A turnaround in the risk sentiment undermined the safe-haven USD and remained supportive.
• Roadblocks to US stimulus plan might cap gains ahead of the FOMC decision on Wednesday.

The GBP/USD pair recovered around 65-70 pips from one-week lows and has now moved to the top end of its daily trading range, near the 1.3670-75 region.

The pair extended its recent pullback from multi-year tops and witnessed some selling through the first half of the European session on Tuesday. The intraday decline seemed rather unaffected by mostly upbeat UK employment details, albeit managed to find decent support ahead of the 1.3600 mark.

A turnaround in the global risk sentiment – as depicted by a goodish rebound in the European equity markets – failed to assist the safe-haven US dollar to capitalize on its intraday modest gains. This, in turn, was seen as one of the key factors that attracted some dip-buying around the GBP/USD pair.

That said, the upside is likely to remain capped amid doubts over the size and the timing of the US fiscal stimulus. Republican raised objections against the size of the package, while Democratic Majority Leader Chuck Schumer said that a comprehensive deal could be four to six weeks away.

It is worth recalling that the US President Joe Biden had proposed a $1.9 trillion COVID-19 stimulus package to support the US economic recovery. Fading hopes for rapid approval of new US economic stimulus could keep a lid on any risk-on rally and help limit the downside for the greenback.

Market participants now look forward to the release of the Conference Board’s US Consumer Confidence Index. This, along with the US stimulus headlines and developments surrounding the coronavirus saga, might influence the USD price dynamics and provide some impetus to the GBP/USD pair.

Meanwhile, the key focus remains on the latest FOMC monetary policy decision on Wednesday. This will be followed by the release of the Advance US Q4 GDP report on Thursday. This, in turn, will drive the USD and assist investors to determine the near-term trajectory for the GBP/USD pair.

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