The GBP/USD pair received support near the psychological level of 1.2500 on Monday and remained stable in the early part of the North American session. The pair is presently trading around 1.2550, within close proximity of its highest level since June 2022 reached on Friday.
The US Dollar (USD) gave up a significant portion of its modest intraday gains due to uncertainty over the Federal Reserve’s (Fed) rate-hike trajectory, supporting the GBP/USD pair.
The markets have already priced in a 25 basis points lift-off at the end of a two-day FOMC monetary policy meeting starting on Wednesday, which has buoyed US Treasury bond yields and provided a tailwind for the USD.
Nevertheless, investors are confident that the US central bank will keep rates steady for the rest of the year, restraining the USD bulls from making aggressive wagers.
The anticipation that the Bank of England (BoE) will raise interest rates by 25 basis points in May has aided the GBP/USD pair in attracting some dip-buying at lower levels, although the upside seems restricted ahead of the highly-awaited FOMC meeting.
Moreover, the Greenback’s relative safe-haven status due to looming recession risks may continue to support it, capping gains for the GBP/USD pair, at least in the short term.
From a technical standpoint, Friday’s sustained breakthrough and acceptance above the 1.2500 psychological mark, along with the emergence of some dip-buying on Monday, favors the bulls and indicates that the path of least resistance for spot prices is to the upside.
The next significant event is the release of the US ISM Manufacturing PMI, which, along with the US bond yields and the overall risk sentiment, will determine the USD’s demand and provide some meaningful impetus to the GBP/USD pair.
However, the immediate market reaction is likely to be limited, requiring some caution before making aggressive directional bets.
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