- Sustained USD selling bias pushed GBP/USD higher for the second straight session on Tuesday.
- Dovish Fed expectations, sliding US bond yields, the risk-on mood all weighed on the greenback.
- The lack of follow-through buying warrants some caution before placing aggressive bullish bets.
The GBP/USD pair spiked to fresh daily tops during the early European session, albeit struggled to find acceptance above the 1.4200 mark and quickly retreated around 30-35 pips in the last hour. The pair was last seen trading near the 1.4175-80 region, still up nearly 0.20% for the day.
The pair built on the previous day's goodish intraday rebound from the vicinity of the 1.4100 mark and gained strong follow-through traction on Tuesday amid sustained US dollar selling bias. The White House pared down the infrastructure bill to $1.7 trillion from $2.25 trillion and eased fears about runaway inflation in the US. This, in turn, forced investors to trim their bets for an earlier than anticipated Fed lift-off, which continued acting as a headwind for the greenback.
Diminishing odds for an inflation-driven rate hike was reinforced by the ongoing decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond slipped below the 1.60% threshold, to the lowest level in two weeks and contributed to the offered tone surrounding the USD. Apart from this, the prevalent risk-on environment further dented the greenback's relative safe-haven status and provided a goodish lift to the GBP/USD pair.
Despite the supporting factors, bulls struggled to capitalize on the move or find acceptance above the 1.4200 mark. In the absence of any fresh catalyst, some cross-driven weakness stemming from an uptick in the EUR/GBP held investors from placing aggressive bullish bets amid fears over the long-term impact of Brexit. That said, the upbeat outlook for the UK economy supports prospects for a further near-term appreciating move for the GBP/USD pair.
Market participants now look forward to the US economic docket, highlighting the release of the Conference Board's Consumer Confidence Index later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and provide some impetus to the GBP/USD pair.