GBP/USD, rejected at 1.2110, dives to 1.2035 area

• GBP/USD U-turns at 1.2110 and retreats to 1.2035 area
• The USD trims losses after a negative market opening.
• The market mood remains positive on the back of easing covid restrictions in China.

The Pound is performing a sharp U-turn on Tuesday, The pair’s run-up from last Friday’s lows at 1.2020 has been capped at 1.2110 earlier today, before giving away most of the ground taken on the previous days and returning to 1.2035 so far.

The Pound loses ground in spite of the positive market mood

The Sterling has failed to capitalize on the positive market mood seen on Tuesday. News that Chinese authorities will scrap quarantine requirements for inbound travelers has been welcomed by investors, which reflects on the advances in the world's major stock markets.

Furthermore, the US dollar is trimming losses after a negative opening, weighed by the positive market mood and increasing hopes that the Federal Reserve will soften its monetary tightening path in 2023.

Data released on Friday showed that the US Core PCE Prices Index, the Fed’s preferred inflation gauge, showed the third consecutive decline in November, suggesting that the inflationary peak might have passed. Beyond that, consumer spending slowed down in November, adding reasons for the US Central Bank to reconsider its hawkish stance.

In absence of key macroeconomic releases in the UK, a Financial Times report from retail intelligence provider Springboard announced a decline in boxing day sales despite the increase of shoppers from last year, when COVID-19 restrictions kept consumers at home.

In the US, investors’ focus will be on the release of the US Goods Trade Balance, Housing prices, and the Dallas Fed Manufacturing Index, although the impact on currency crosses is likely to be limited.

Technical levels to watch