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- GBP/USD regained positive traction on Monday and shot to two-week tops.
- The risk-on mood undermined the safe-haven USD and remained supportive.
- The USD downside seems limited, warranting some caution for bullish traders.
The GBP/USD pair rallied over 50 pips during the early European session and climbed to two-week tops, around the 1.3865-70 region in the last hour.
As investors looked past Friday’s blockbuster US NFP report, the prevalent risk-on mood capped the upside for the safe-haven US dollar and provided a modest lift to the GBP/USD pair. The British pound was further supported by the highly successful vaccination distribution program and the gradual reopening of the UK economy.
The uptick could further be attributed to some repositioning trade ahead of the UK Prime Minister Boris Johnson’s announcement on the second phase of easing lockdown restrictions. This would allow non-essential shops, pubs and restaurants, hairdressers and nail salons to open starting from April 12 and the potential to reopen foreign travel.
That said, a combination of factors might continue to underpin the greenback and keep a lid on any further gains for the GBP/USD pair. Investors remain optimistic about the prospects for a relatively faster US economic recovery from the pandemic, bolstered by the Biden administration’s planned stimulus of more than $2 trillion.
Meanwhile, the upbeat US economic outlook has been fueling fears about an uptick in US inflation and raised doubts that the Fed will retain ultra-low interest rates for a longer period. This, in turn, pushed the yield on the benchmark 10-year US government bond back above the 1.70% threshold, which should further underpin the USD.
Given that the European markets are closed in observance of Easter Monday, relatively thin liquidity conditions might further hold investors from placing aggressive bets. This further makes it prudent to wait for some strong follow-through buying before traders start positioning for an extension of the intraday move up.
Market participants now look forward to the US economic docket, highlighting the release of the ISM Services PMI for a fresh impetus. Apart from this, the US bond yields will influence the USD price dynamics. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the GBP/USD pair.