GBP/USD climbs to multi-day tops, eyeing 1.3600 mark
- GBP/USD gained positive traction for the third successive session on Monday.
- A modest USD weakness turned out to be a key factor driving the pair higher.
- A combination of factors should help limit the USD losses and cap the upside.
The GBP/USD pair quickly recovered nearly 60 pips from the early European session lows and shot to four-day tops, around the 1.3585-90 region in the last hour.
The pair attracted some dip-buying near the 1.3530 region on Monday and built on last week's recovery move from the 1.3400 neighbourhood, or the lowest level since December 2020. This marked the third successive day of a positive move for the GBP/USD pair and was exclusively sponsored by a modest US dollar weakness.
In fact, the key USD Index retreated further from one-year tops touched last Thursday and extended some support to the GBP/USD pair. That said, a combination of factors should help limit deeper losses for the greenback and keep a lid on any meaningful upside for the major, warranting some caution for aggressive bullish traders.
Investors seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November. The markets also seem to have started pricing in the prospect for a Fed interest rate hike in 2022. This, along with a goodish pickup in the US Treasury bond yields, should act as a tailwind for the USD.
Apart from this, the risk-off impulse should also extend some support to the safe-haven greenback. Worries that Evergrande Group's debt crisis could spread to China's entire property sector tempered investors' appetite for perceived riskier assets. This was evident from a generally weaker tone around the equity markets.
On the other hand, the ongoing fuel crisis in the United Kingdom should hold traders from placing aggressive bullish bets around the British pound. Adding to this, renewed tensions between Britain and France over post-Brexit fishing rights might further collaborate to cap gains for the GBP/USD pair, at least for the time being.
Hence, it will be prudent to wait for a strong follow-through buying before confirming that the GBP/USD pair has bottomed out in the near term and positioning for any further gains. There isn't any major market-moving economic data, due for release on Monday, either from the UK or the US, leaving the pair at the mercy of the USD price dynamics.
Technical levels to watch