- GBP/USD witnessed a dramatic turnaround and retreated nearly 100 pips from multi-year tops.
- Downward revising of the UK Manufacturing PMI seemed to have prompted some profit-taking.
- A pickup in the US bond yields extended some support to the USD and added to the selling bias.
The GBP/USD pair retreated further from multi-year tops and refreshed daily lows, around the 1.4160-65 region heading into the North American session.
Following an early uptick to the highest level since April 2018, the pair witnessed a dramatic turnaround on Tuesday and dropped nearly 100 pips from the vicinity of mid-1.4200s. The intraday downfall picked up pace after the UK Manufacturing PMI was revised down to 65.6 for May from 66.1 estimated previously.
Meanwhile, bulls seemed rather unimpressed by the prevalent bearish sentiment surrounding the US dollar, which continues to be weighed down by dovish Fed expectations. Investors now seem aligned with the Fed’s view that any spike in prices would be temporary and have been scaling back their bets for an earlier than anticipated lift-off.
Apart from this, the relentless rally in the global equity markets was seen as another factor that further undermined the safe-haven USD. However, a goodish move up in the US Treasury bond yields assisted the greenback to recover a part of its intraday losses.
That said, the downside is likely to remain cushioned amid the optimistic outlook for the UK economic recovery amid the gradual easing of lockdown restrictions. Adding to this, indications that the Bank of England could raise rates well into next year might continue to act as a tailwind for the sterling and help limit any deeper losses.
Hence, it will be prudent to wait for some strong follow-through buying before confirming that the GBP/USD pair has topped out in the near term and positioning for any meaningful corrective slide. Market participants now look forward to the US economic docket, highlighting the release of US ISM Manufacturing PMI for a fresh impetus.
Apart from this, the broader market risk sentiment and the US bond yields might influence the USD price dynamics. Traders will further take cues from scheduled speeches by the Bank of England Governor Andrew Bailey, the Fed Vice Chair Randal Quarles and Governor Lael Brainard for some short-term opportunities around the GBP/USD pair.
Technical levels to watch
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