GBP/USD flirts with daily high, around 1.3625 area amid modest USD weakness

• GBP/USD regained positive traction on Monday amid the emergence of fresh USD selling.
• Hopes for a diplomatic solution to the Ukraine crisis weighed on the safe-haven greenback.
• Bets for more BoE rate hikes benefitted the GBP and remained supportive of the move up.

The GBP/USD pair maintained its bid tone through the early European session and was last seen trading near the daily high, around the 1.3620-1.3625 region.

Following Friday's pullback from the vicinity of mid-1.3600s or monthly high, the GBP/USD pair caught fresh bids on the first day of a new week and was supported by renewed US dollar selling bias. The latest optimism over hopes for a diplomatic solution to the East-West standoff over Ukraine lifted the global risk sentiment. This was evident from a goodish move up in the US equity futures, which, in turn, undermined the greenback's relative safe-haven status.

Apart from this, uncertainty about the Fed's tightening plans acted as a headwind for the buck. In fact, the minutes of the January 25-26 FOMC meeting did little to reinforce expectations for a 50 bps rate hike in March. Moreover, the latest geopolitical developments could force the Fed to adopt a less aggressive policy stance to combat stubbornly high inflation. This was evident from the recent pullback in the US Treasury bond yields, which further weighed on the USD.

On the other hand, the British pound was supported by rising bets for additional interest rate hikes by the Bank of England, boosted by last week's mostly upbeat UK macro data. That said, the lack of progress in talks to resolve the problems with the Northern Ireland protocol of the Brexit agreement held back bullish traders from placing aggressive bets around the GBP/USD pair. This makes it prudent to wait for some follow-through buying before positioning for any further gains.

Even from a technical perspective, the GBP/USD pair, so far, has struggled to make it through a resistance marked by a downward sloping trend-line extending from July 2021. The mentioned barrier should act as a key pivotal point, which if cleared decisively will mark a near-term bullish breakout and pave the way for a further appreciating move. Market participants now look forward to the flash UK Manufacturing and Services PMI for some short-term trading impetus.

Technical levels to watch