- GBP/USD attracted some dip-buying on Monday and turned positive for the second straight day.
- The uptick lacked any obvious catalyst and is likely to remain capped amid a modest USD strength.
- A sustained strength beyond the 1.4200 mark is needed to support prospects for additional gains.
The GBP/USD pair managed to rebound around 60-65 pips from early European session lows and refreshed daily tops, around the 1.4170-75 region in the last hour.
The British pound kicked off the new week on the backfoot and was weighed down by a combination of factors. Doubts over the UK government’s plan to reopen the economy on June 21 in light of the spread of the so-called Delta variant turned out to be one of the key factors that undermined the sterling through the first half of the trading action.
Apart from this, indications that Britain’s relationship with the European Union has been souring exerted some additional downward pressure on the GBP/USD pair. Ahead of Brexit talks on the Northern Ireland protocol later this week, the EU’s ambassador to the UK said on Sunday that the level of trust between the two powers was low.
This, along with a modest US dollar uptick contributed to the GBP/USD pair’s early decline. As investors looked past Friday’s mixed US monthly jobs report, the greenback found some support from the US Treasury Secretary Janet Yellen’s comments over the weekend, saying that higher interest rates would be a plus for the Fed.
It is worth recalling that softer headline NFP print had tempered market expectations that the Fed would begin tapering its asset-purchases sooner rather than later. Yellen’s remarks, however, re-ignited taper talks amid worries about rising inflationary pressures, which, in turn, acted as a tailwind for the US bond yields.
Despite the negative factors, the GBP/USD pair once again showed some resilience near the 1.4100 round-figure mark and attracted some dip-buying on Monday. The subsequent positive move supports prospects for additional gains, though it will be prudent to wait for a sustained strength beyond the 1.4200 mark before placing fresh bullish bets.
There isn’t any major market-moving economic data due for release on Monday, either from the UK or the US. Hence, the US bond yields will continue to play a key role in influencing the USD price dynamics. Traders might further take cues from the incoming Brexit-related headlines in order to grab some short-term opportunities.