GBP/USD has been fluctuating in a relatively tight range above 1.2300 so far on Tuesday after having closed the first day of the week virtually unchanged. The British pound is struggling to capitalize on risk flows, suggesting that the pair stays vulnerable with the dollar’s market valuation dominating the pricing action.
The downward correction witnessed in the benchmark 10-year US Treasury bond yield helped GBP/USD limit its losses on Monday. In the absence of high-tier macroeconomic data releases, comments from Fed officials caused the US yields and the dollar to stay on the back foot.
Atlanta Fed President Raphael Bostic pushed back against 75 basis points rate hikes and noted there were signs indicating that inflation may have peaked. On a similar note, Minneapolis Fed President Neel Kashkari said that he was confident that inflation will come down to the Fed’s target of 2%.
On the other hand, Bank of England (BOE) policymaker Michael Saunders said that he would prefer the policy to quickly move to a neutral stance amid heightened risks of inflationary pressures turning more persistent than forecast. Nevertheless, the 10-year UK government bond yield is down more than 3% early Tuesday, making it even more difficult for the British pound to find demand.
Although the market mood seems to be improving on Tuesday with the UK’s FTSE 100 Index rising 0.7%, the S&P Futures are down 2.1%, suggesting that a risk rally is yet to come by. In case Wall Street’s main indexes manage to start the day in positive territory following Monday’s heavy selloff, the dollar could weaken against its rivals.
In short, the fundamental outlook and the fragile risk perception should continue to cap GBP/USD’s recovery attempts and limit any upward moves to technical corrections.
GBP/USD Technical Analysis
The descending trend line coming from May 5 stays intact and the Relative Strength Index (RSI) indicator on the four-hour chart struggles to rise above 50. Additionally, GBP/USD is yet to clear the 20-period SMA on the same chart, highlighting the lack of buyers’ interest.
On the upside, 1.2370 (static level, descending trend line) forms the first resistance ahead of 1.2400 (psychological level) and 1.2450 (50-period SMA).
On the flip side, the bearish pressure could ramp up with a four-hour close below 1.2300 (psychological level) and drag the pair toward 1.2250 (static level from June 2020) and 1.2200 (psychological level).