- GBP/USD gained some positive traction on Wednesday amid a modest USD weakness.
- The prevalent risk-on mood, retreating US bond yields weighed on the safe-haven USD.
- Hawkish Fed expectations should help limit the USD fall and cap the upside for the pair.
The GBP/USD pair traded with a mild positive bias heading into the European session and was last seen hovering around mid-1.3200s, up only 0.10% for the day.
Having found some support ahead of the 1.3200 mark on Tuesday, the GBP/USD pair managed to regain some positive traction on Tuesday and was supported by a modest US dollar weakness. Against the backdrop of the upbeat market mood, retreating US Treasury bond yields acted as a headwind for the safe-haven greenback and extended some support to the major.
The global risk sentiment remained well supported by easing concerns about the negative impact of the new coronavirus variant on the economic recovery. This comes on the back of reports, indicating that indicated that Omicron patients had only shown mild symptoms. This led to a strong rally in the global equity markets over the past two trading sessions.
That said, rising geopolitical tensions kept a lid on the recent optimistic moves, which along with the prospects for a faster policy tightening by the Fed should help limit the USD losses. Apart from this, the UK-EU impasse over the Northern Ireland Protocol held back traders from placing aggressive bullish bets and capped gains for the GBP/USD pair.
Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. Hence, the market focus will remain glued to the release of the latest US CPI report on Friday, which will influence the near-term USD price dynamics and provide a fresh directional impetus to the GBP/USD pair.
In the meantime, the broader market risk sentiment and the USD price dynamics would play a key role in driving the USD and provide some trading opportunities around the GBP/USD pair. In the absence of any relevant market-moving economic releases, it will be prudent to wait for a strong follow-through buying before positioning for any further gains.