GBP/USD gained some positive traction on Tuesday and recovered a part of the overnight losses.
The risk-on impulse in the markets weighed on the safe-haven USD and provided a modest lift.
Hawkish Fed expectations, rising US bond yields might continue to act as a tailwind for the USD.
The GBP/USD pair edged higher through the early European session and climbed to fresh daily tops, around the 1.3680 region in the last hour.
The pair attracted some buying during the first half of the trading action on Tuesday and recovered a part of the overnight slump to four-week lows. The uptick allowed the GBP/USD pair to snap three consecutive days of the losing streak and was exclusively sponsored by a modest US dollar weakness.
The risk-on impulse – as depicted by a solid rebound in the equity markets – was seen as a key factor that undermined the safe-haven demand. However, fears of a potential China Evergrande default might keep a lid on the market optimism amid expectations for an imminent Fed taper announcement.
Investors now seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus sooner rather than later. This, along with a goodish pickup in the US Treasury bond yields, should act as a tailwind for the USD and cap gains for the GBP/USD pair, warranting caution for bulls.
There isn’t any major market-moving economic data due for release from the UK, leaving the GBP/USD pair at the mercy of the USD price dynamics. This further makes it prudent to wait for some follow-through buying beyond the 1.3700 mark before positioning for any further gains.
Later during the early North American session, the US housing market data might also do little to provide any meaningful impetus to the GBP/USD pair. The market focus remains glued to the outcome of a two-day FOMC monetary policy meeting for clues about the Fed’s tapering plan.
Apart from this, investors will further take cues from the latest policy update by the Bank of England, scheduled on Thursday. The key central bank events should help determine the next leg of a directional move for the GBP/USD pair.
Technical levels to watch