GBP/USD trades with modest gains around mid-1.3800s
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GBP/USD trades with modest gains around mid-1.3800s

  • GBP/USD edged higher on Tuesday, albeit lacked any strong follow-through buying.
  • The upbeat US economic outlook underpinned the USD and capped gains for the pair.

The GBP/USD pair traded with a positive bias on Tuesday, albeit lacked any strong follow-through and remained confined in the previous day’s trading range. The pair was last seen hovering near mid-1.3800s, up around 0.20% for the day.

The pair continued with its struggle to register any meaningful recovery from near one-month lows, or sub-1.3800 levels touched in the aftermath of the upbeat US NFP report on Friday. The underlying bullish sentiment surrounding the US dollar was seen as a key factor that held bulls from placing bets and capped the upside for the GBP/USD pair.

The USD stood tall near three-and-half-month lows and remained well supported by the optimistic US economic outlook. Against the backdrop of the impressive pace of COVID-19 vaccinations, the passage of a massive US fiscal spending bill further lifted hopes for a relatively faster US economic recovery and continued underpinning the greenback.

The US Senate on Saturday voted 50-49 in favour of US President Joe Biden’s $1.9 trillion pandemic relief package and triggered another sell-off in the US fixed income market. This, along with expectations for an uptick in US inflation, pushed the yield on the benchmark 10-year US bond back closer to over one-year tops touched last week.

Meanwhile, US Treasury Secretary Janet Yellen said on Monday said that the package would provide enough resources to fuel a very strong US economic recovery. Yellen further added that there are tools to deal with inflation and triggered a modest pullback in the US bond yields. This, in turn, capped the USD and extended some support to the GBP/USD pair.

The British pound was further supported by the easing of coronavirus-induced lockdown measures in England. As the first step of a four-step plan, all schools reopened from March 8 and recreation in outdoor public spaces will be allowed between two people. That said, the lack of follow-through buying warrants some caution for bullish traders.

There isn’t any major market-moving economic data due for release on Tuesday, either from the UK or the US. This further makes it prudent to wait for some strong follow-through buying before positioning for any further gains and confirming that the recent pullback from nearly three-year tops has already run its course.

Technical levels to watch


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