- GBP/USD slips back below the 1.2200 mark on Tuesday amid a goodish USD rebound.
- Recession fears, US-China tensions over Taiwan drive safe-haven flows towards the USD.
- Sliding US bond yields might cap the USD and lend support to the pair ahead of the BoE.
The GBP/USD pair witnessed a turnaround from the 1.2275-1.2280 region on Tuesday and retreats further from its highest level since June 27 touched the previous day. The steady intraday descent extends through the early part of the European session and drags spot prices below the 1.2200 mark in the last hour.
The US dollar stages a goodish rebound from a four-week low set earlier this Tuesday, which turns out to be a key factor exerting downward pressure on the GBP/USD pair. The market sentiment remains fragile amid growing worries about a global economic downturn. Apart from this, mounting diplomatic tensions ahead of the planned Taiwan visit by US House Speaker Nancy Pelosi is tempering investors' appetite for riskier assets and benefiting the safe-haven greenback.
The anti-risk flow, along with expectations that the Fed may not hike interest rates as aggressively as estimated, continue to drag the US Treasury bond yields lower. This might hold back the USD bulls from positioning for any meaningful upside. Apart from this, rising bets for a 50 bps rate hike by the Bank of England should continue to lend support to the British pound. The combination of factors could lend support to the GBP/USD pair and limit the downside.
Investors might also prefer to wait on the sidelines ahead of this week's central bank event risk and important US macro data. The BoE is scheduled to announce its monetary policy decision on Thursday, which could play a key role in influencing the near-term sentiment surrounding sterling. Investors will further take cues from the closely-watched US monthly jobs report (NFP) on Friday to determine the next leg of a directional move for the GBP/USD pair.
In the meantime, Tuesday's US economic docket, featuring the only release of JOLTS Job Openings data might provide some impetus later during the early North American session. Apart from this, the US bond yields and the broader risk sentiment would drive the USD demand, allowing traders to grab short-term opportunities around the GBP/USD pair. Nevertheless, it would be prudent to wait for strong follow-through selling before confirming that spot prices have topped out.