- GBP/USD attracted some dip-buying on Monday and reversed the weekly bearish gap.
- Retreating US bond yields weighed on the USD and extended some support to the pair.
- COVID-19 vaccine jitters might hold bulls from placing aggressive bets and cap gains.
The GBP/USD pair struggled to capitalize on its intraday bounce from multi-day lows and was last seen trading in the neutral territory, just above mid-1.3800s.
The pair opened with a modest bearish gap and dropped to multi-day lows during the early part of the trading action on Monday amid sustained US dollar buying. Worries that events in Turkey will cause disruptions in other asset classes weighed on investors’ sentiment. This was evident from a weaker tone surrounding the equity markets, which, in turn, drove some haven flows towards the USD.
That said, the ongoing pullback in the US Treasury bond yields held the USD bulls from placing aggressive bets and helped limit any further losses for the GBP/USD pair. However, the prospects for a relatively faster US economic recovery from the pandemic might continue to lend some support to the greenback and keep a lid on any meaningful gains for the major, at least for the time being.
Investors remain optimistic about the US economic outlook following the passage of a massive fiscal stimulus package. The reflation trade has been fueling expectations for a possible uptick in inflation. Moreover, investors remain convinced that the rapid pace of improvement in economic conditions would force the Fed to normalise monetary policy sooner rather than later.
Apart from this, reports that the European Union is set to block exports of Oxford-AstraZeneca vaccines to the UK might further collaborate towards capping the upside for the British pound. A significant shortage in vaccine supplies could derail the UK government’s plan to exit the current lockdown and dampen prospects for a swift economic recovery.
There isn’t any major market-moving economic data due for release from the UK on Monday, while the US economic docket features the only release of Existing Home Sales. Hence, the focus will be on comments by Fed Chair Jerome Powell and speeches by a slew of influential FOMC member. This, along with the US bond yields, might influence the USD price dynamics and produce some trading opportunities around the GBP/USD pair.
Technical levels to watch
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