GBP/USD pares intraday gains to two-week tops, up little around 1.3625-30 area

• The British pound got a goodish lift on Monday after the BoE signalled an imminent rate hike.
• The upside remains capped amid the underlying bullish sentiment surrounding the greenback.
• Hawkish Fed expectations, cautious market mood acted as a tailwind for the safe-haven USD.

The GBP/USD pair surrendered a major part of its intraday gains and was last seen trading around the 1.3625-30 region, still up over 0.10% for the day.

The Bank of England officials signalled an imminent interest rate hike over the weekend and provided a goodish intraday lift to the British pound on the first day of a new trading week. The BoE Governor Andrew Bailey warned of a potentially very damaging period of inflation unless policymakers take action. Adding to this, Michael Saunders, one of the most hawkish members of the BoE's Monetary Policy Committee, suggested that investors were right to bring forward bets on rate hikes.

The GBP/USD pair climbed to near two-week tops, around the 1.3670-75 region, albeit struggled to capitalize on the move amid a modest pickup in the US dollar demand. Friday's disappointing headline NFP print for September was offset by a big upward revision to the previous month's reading and reaffirmed expectations that the Fed will soon begin tapering its asset purchases. The markets also seem to have increased the bets for an interest rate hike by the Fed in 2022.

Worries that the recent surge in crude oil/energy prices will stoke inflation have been fueling speculations for an early policy tightening by the Fed. The combination of factors pushed the yield on the benchmark 10-year US government bond to four-month tops, beyond the 1.60% threshold on Friday. This, in turn, continued acting as a tailwind for the greenback and kept a lid on any strong follow-through positive move for the GBP/USD pair, at least for the time being.

Meanwhile, fears of a return of stagflation – high inflation and low growth – tempered investors' appetite for perceived riskier assets. This was evident from a softer tone around the equity markets, which was seen as another factor that benefitted the greenback's relative safe-haven status. Hence, it will be prudent to wait for a strong follow-through selling before placing fresh bullish bets around the GBP/USD pair and positioning for any further appreciating move.

There isn't any major market-moving economic data due for release from the UK, while the US money markets will remain closed in observance of Columbus Day. This further held investors on the sidelines and collaborated towards capping gains for the GBP/USD pair, rather prompted some selling at higher levels. Market participants now look forward to the UK monthly employment details, scheduled for release on Tuesday for some meaningful trading opportunities.

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