GBP/USD rebounds swiftly from sub-1.3000 levels, upside potential seems limited

• GBP/USD staged a goodish intraday bounce from sub-1.3000 levels on Tuesday.
• Softer US bond yields held the USD bulls on the defensive and extended support.
• Bets for a more aggressive Fed should limit losses for the USD and cap the major.

The GBP/USD pair recovered over 50 pips from the early European session low and shot to a fresh daily high, around the 1.3040 region in the last hour.

The pair once again showed some resilience below the 1.3000 psychological mark and staged a goodish intraday bounce from the four-day low touched earlier this Tuesday. The uptick allowed the GBP/USD pair to snap three days of the losing streak and reverse a major part of the previous day's losses. The US dollar eased a bit from a fresh two-year high amid a softer tone surrounding the US Treasury bond yields, which, in turn, offered some support to spot prices.

Apart from this, signs of stability in the equity markets further undermined the safe-haven buck. On the other hand, the British pound drew support from some cross-driven strength stemming from a blowout rally in the GBP/JPY cross. This was seen as another factor that contributed to the GBP/USD pair's modest intraday uptick. That said, any meaningful upside still seems elusive amid expectations that the Fed would tighten its monetary policy at a faster pace.

In fact, the markets seem convinced that the Fed would deliver multiple 50 bps rate hikes to combat stubbornly high inflation. Moreover, St. Louis President James Bullard said on Monday that the US central bank shouldn’t rule out rate increases of 75 bps. This should act as a tailwind for the US bond yields and limit the downside for the buck. This, in turn, suggests that the GBP/USD pair's attempted recovery might still be seen as a selling opportunity.

In the absence of any major market-moving economic releases from the UK, the USD price dynamics will continue to play a key role in influencing the GBP/USD pair. Later during the early North American session, traders will take cues from the US housing market data and a scheduled speech by Chicago Fed President Charles Evans. This, along with the US bond yields and the broader risk sentiment, will drive the USD and produce some trading opportunities around the major.

Technical levels to watch