GBP/USD trades with a mild positive bias around 1.2600, lacks bullish conviction
- GBP/USD edges higher during the Asian session on Monday amid subdued USD demand.
- The uncertainty over the Fed's rate-hike path is seen as a key factor undermining the USD.
- The lack of any meaningful buying warrants some caution for aggressive bullish traders.
The GBP/USD pair edges higher on the first day of a new week, albeit lacks follow-through buying or build on its modest intraday gains around the 1.2600 round-figure mark.
The mixed US monthly jobs report released on Friday ensures that the Fed will leave rates unchanged at its September meeting and fails to assist the USD to capitalize on last week's strong move up back closer to the August monthly swing high. In contrast, the Bank of England (BoE) is anticipated to continue with its policy tightening cycle to combat high inflation, which turns out to be another factor acting as a tailwind for the GBP/USD pair. It is worth recalling that BoE Deputy Governor Ben Broadbent had said that policy rates may well have to remain in restrictive territory for some time as the knock-on effects of the surge in prices were unlikely to fade away rapidly.
Adding to this, BoE Chief Economist Huw Pill noted last Thursday that inflation in the UK remains "too high" and added that there is a lot of policy in the pipeline to come through. That said, the lack of buying interest warrants some caution before placing fresh bullish bets around the GBP/USD pair and positioning for any meaningful appreciating move. The markets are still pricing in the possibility of one more 25 bps Fed rate hike by the end of this year. This remains supportive of elevated US Treasury bond yields, which, in turn, is seen underpinning the Greenback and capping the upside for the major in the wake of growing concerns about a deeper global economic downturn.
Traders also seem reluctant in the absence of any relevant market-moving economic releases from the UK and a bank holiday in the US. Nevertheless, the GBP/USD pair, for now, seems to have snapped a two-day losing streak, though remains well within the striking distance of its lowest level since June 13, around the 1.2550-1.2545 region touched in August. The said area should now act as a pivotal point and help determine the next leg of a directional move for the major.
Technical levels to watch