GBP/USD struggles to gain traction, hangs near YTD low around 1.3100 mark
- GBP/USD staged modest intraday bounce from the lowest level since November 2020.
- Mostly upbeat UK data, BoE rate hike bets extended some support to the British pound.
- The risk-on impulse undermined the safe-haven USD and provide modest intraday lift.
- Bulls, however, struggled to capitalize on the attempted recovery amid the Ukraine crisis.
The GBP/USD pair witnessed good two-way price moves on Friday and was last seen trading in the neutral territory, just below the 1.3100 round-figure mark.
Having dropped to the lowest level since November 2020, the GBP/USD pair staged a modest bounce from mid-1.3000s on the last day of the week in reaction to upbeat UK macro releases. In fact, the monthly UK GDP report released earlier today showed that the economy bounced back sharply from the 0.2% decline in December and expanded by 0.8% in January, higher than market expectations.
Furthermore, industrial output rose 0.7% MoM in January, driven by the 0.8% growth in manufacturing production. Adding to this, services sector output increased by 0.8% during the reported month as against a 0.5% fall recorded in December. The data reaffirmed expectations that the Bank of England will hike interest rates at its meeting next week and benefitted the British pound.
On the other hand, renewed hopes for a diplomatic solution to the Russia-Ukraine conflict led to a goodish move up in the equity markets and undermined the safe-haven US dollar. The latest optimism was fueled by comments by Russian President Vladimir Putin, saying that there are certain positive shifts in talks with Ukraine. This further acted as a tailwind for the GBP/USD pair.
The attempted recovery, however, lacked bullish conviction and met with a fresh supply near the 1.3125 region. The market sentiment remains fragile amid the risk of further escalation in tensions between Russia and the West. This, along with Thursday's strong US CPI report, continued lending some support to the greenback and kept a lid on any meaningful upside for the GBP/USD pair.
Investors now look forward to the release of the Prelim Michigan US Consumer Sentiment Index for some impetus. The focus, however, will remain on the incoming geopolitical headlines and fresh developments surrounding the Russia-Ukraine saga. This would influence the broader risk sentiment and the USD price dynamics, allowing traders to grab some opportunities around the GBP/USD pair.
Technical levels to watch