GBP/USD sticks to modest gains above 1.3300 mark post-UK PMI
- GBP/USD gained some positive traction on Wednesday, albeit lacked any follow-through.
- Brexit-related uncertainties acted as a headwind for the GBP amid renewed USD buying.
- The UK Manufacturing PMI was finalized at 58.1 vs. 58.2 estimates but failed to influence.
The GBP/USD pair refreshed daily low during the early part of the European session, albeit quickly recovered a few pips thereafter and was last seen trading around the 1.3315 area.
The pair gained some positive traction on Wednesday and built on the previous day's solid bounce from sub-1.3200 levels, or the lowest level since December 2020. The intraday uptick, however, lacked bullish conviction and ran out of steam near the 1.3330 area amid the emergence of fresh buying around the US dollar.
The greenback drew some support from a strong pickup in the US Treasury bond yields, bolstered by the overnight hawkish comments by Fed Chair Jerome Powell. Testifying before the Senate Banking Committee, Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner.
Powell further added that it's time to retire the word transitory as the risk of persistently higher inflationary pressures has increased. Reacting to Powell's remarks, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022. This, in turn, acted as a tailwind for the US bond yields.
In fact, the yield on the benchmark 10-year US government bond shot back above the 1.50% threshold, which helped revive the USD demand and prompted fresh selling around the GBP/USD pair. Apart from this, the persistent Brexit-related uncertainties acted as a headwind for the sterling and contributed to the pair's slide.
The downside, however, remains cushioned in the absence of any negative Brexit-related headlines and a generally positive tone around the equity markets, which capped gains for the safe-haven USD. The global risk sentiment stabilized as investors preferred to wait and see if the Omicron variant would derail the economic recovery.
On the economic data front, the UK Manufacturing PMI was finalized at 58.1 for November as against the flash estimate of 58.2. The data, however, did little to provide any meaningful impetus to the GBP/USD pair. Market participants now look forward to the US economic docket, featuring the ADP report on private-sector employment and ISM Manufacturing PMI.
Traders will further take cues from Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee. Apart from this, developments surrounding the coronavirus saga and the broader market risk sentiment will influence the USD price dynamics and produce some trading opportunities around the GBP/USD pair.
Technical levels to watch