- GBP/USD rebounds swiftly from a multi-day low touched earlier this Monday.
- A recovery in the risk sentiment undermines the USD and offers some support.
- Hawkish Fed expectations could help limit the USD downside and cap the pair.
The GBP/USD pair builds on its goodish intraday bounce from the 1.2030 area, or a multi-day low touched earlier this Monday and scales higher through the mid-European session. Spot prices climb back above the 1.2100 mark in the last hour and reverse a major part of Friday’s downfall amid the emergence of some US Dollar selling.
A modest recovery in the global risk sentiment – as depicted by a turnaround in the equity markets – exerts some downward pressure on the safe-haven buck. Apart from this, a softer tone around the US Treasury bond yields further undermines the Greenback, which, in turn, is seen as a key factor lending some support to the GBP/USD pair.
That said, rising bets for further policy tightening by the Federal Reserve (Fed) should help limit the downside for the USD and cap gains for the GBP/USD pair. Investors now seem convinced that the US central bank will stick to its hawkish stance for longer amid the risk of higher inflation print for January, due for release on Tuesday.
The speculations were fueled by the revision of the previous month’s data, which showed that consumer prices rose in December instead of falling as estimated previously. Furthermore, the University of Michigan survey’s one-year inflation expectations climbed to 4.2% this month from 3.9% in January. This, in turn, favours the USD bulls.
Apart from this, a dovish assessment of the Bank of England (BoE) decision last week warrants some caution before placing aggressive bullish bets around the GBP/USD pair. In the absence of any relevant market-moving economic releases, traders now look to Fed Governor Michelle Bowman’s speech for some impetus ahead of the UK jobs data on Tuesday.