GBP/USD rebounds from near two-week low, flat-lined below 1.3100 amid risk-on mood

• GBP/USD witnessed some intraday selling on Tuesday amid renewed USD buying interest.
• Hawkish Fed expectations, rising US bond yields continued acting as a tailwind for the buck.
• A positive risk tone capped gains for the safe-haven USD and helped limit losses for the pair.

The GBP/USD pair quickly recovered a few pips from a near two-week low touched in the last hour and was last seen trading around the 1.3175-1.3180 region, nearly unchanged for the day.

The pair struggled to preserve its modest intraday gains to the 1.3115 region and turned lower for the fifth successive day on Tuesday amid the emergence of fresh US dollar buying. Rising bets for a 50 bps rate hike at the next two FOMC meetings turned out to be a key factor that continued acting as a tailwind for the buck.

The market expectations for a more aggressive policy response by the Fed to combat high inflation was reinforced by elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond moved back above the 2.5% threshold, or back closer to a nearly three-year peak and underpinned the greenback.

The British pound was further pressured by the overnight dovish sounding remarks by the Bank of England Governor Andrew Bailey, saying that they are seeing evidence of an economic slowdown. Bailey stuck to the tone from this monthly policy decision, wherein officials softened their language on the need for further interest rate hikes.

This was seen as another factor that exerted additional pressure on the GBP/USD pair. That said, a generally positive risk tone, bolstered by hopes for progress in the Russia-Ukraine peace talks, capped the safe-haven USD and helped limit the downside for the GBP/USD pair. This, in turn, warrants some caution for bearish traders.

Hence, the market focus will remain glued to fresh developments surrounding the Russia-Ukraine saga. The incoming geopolitical headlines will influence the broader market risk sentiment. This, along with the US bond yields, will drive demand for the USD and produce some short-term trading opportunities around the GBP/USD pair.

Later during the early North American session, traders will take cues from the US economic docket - featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index.

Technical levels to watch