GBP/USD holds steady above 1.3100 mark, lacks bullish conviction despite upbeat UK PMI

• GBP/USD gained some positive traction on Tuesday amid modest USD weakness.
• Signs of stability in the equity markets dented demand for the safe-haven buck.
• Hawkish Fed expectations to limit the USD losses and cap the upside for the pair.

The GBP/USD pair edged higher during the early part of the European session and inched back closer to mid-1.3100s, though the uptick lacked bullish conviction.

Following the previous day's two-way/directionless price moves, the GBP/USD pair attracted some buying on Tuesday and was supported by modest US dollar weakness. Signs of stability in the equity markets dented demand for traditional safe-haven assets and failed to assist the greenback to capitalize on its gains recorded over the past three days. That said, the uncertainty over Ukraine, along with hawkish Fed expectations, continued acting as a tailwind for the buck and capped the upside for the major.

The market sentiment remains fragile amid the prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine. In fact, Ukraine accused Russian forces of carrying out a massacre in the town of Bucha. This prompted German Defence Minister Christine Lambrecht to say that the European Union should talk about ending Russian gas imports. The incoming geopolitical headlines dashed hopes for a diplomatic solution to end the war and should keep a lid on any optimistic move in the markets.

Moreover, investors seem convinced that the Fed would adopt a more aggressive policy stance and hike interest rates by 100 bps over the next two meetings to combat stubbornly high inflation. This was reinforced by elevated US Treasury bond yields, which should further lend support to the USD. Hence, the market focus will remain glued to the FOMC meeting minutes, scheduled for release on Wednesday. In the meantime, traders might refrain from placing aggressive bullish bets around the GBP/USD pair.

On the economic data front, the UK Services PMI was revised higher and finalized at 62.6 for March as against the 61 flash estimates, though did little to impress bulls. This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the downside. Market participants now look forward to the release of the US ISM Services PMI. This, along with the US bond yields and fresh developments surrounding the Russia-Ukraine saga, might influence the USD price dynamics and provide some impetus to the major.

Technical levels to watch