GBP/USD eases from three-day high, upside remains capped amid Brexit woes

• GBP/USD gained some positive traction on Monday and moved away from YTD low.
• The risk-on impulse undermined the safe-haven USD and extended some support.
• Brexit-related uncertainties acted as a headwind and capped gains for the sterling.

The GBP/USD pair climbed to a three-day high, around the 1.3360-65 region during the mid-European session, albeit lacked follow-through.

The risk-on impulse in the markets failed to assist the safe-haven US dollar to capitalize on its modest intraday gains, rather prompted some selling at higher levels. This, in turn, was seen as a key factor that provided a modest lift to the GBP/USD pair and pushed spot prices further away from the lowest level since December 2020 touched on Friday.

The global risk sentiment witnessed a positive turnaround on the first day of a new week as investors preferred to wait for signs that the Omicron variant of coronavirus would hamper economic recovery. Moreover, views that Friday's slump in the financial markets was overdone led to a strong recovery in the equity markets and undermined traditional safe-haven assets.

Apart from this, expectations for an imminent interest rate hike by the Bank of England in December further underpinned the GBP/USD pair. That said, the UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain held back bullish traders from placing aggressive bets around the sterling.

There isn't any major market-moving data due for release from the UK, while the US economic docket features the only release of Pending Home Sales and might do little to provide any impetus. This makes it prudent to wait for a strong follow-through buying before confirming that the GBP/USD pair has bottomed out and positioning for any meaningful recovery.

Technical levels to watch