GBP/USD climbs to multi-day top, around 1.3365-70 region

• The heavily offered tone surrounding the USD pushed GBP/USD back above mid-1.3300s.
• A steep fall in the US bond yields turned out to be a key factor that weighed on the USD.
• Brexit-related uncertainties could act as a headwind for the British pound and cap gains.

The GBP/USD pair caught fresh bids during the early European session and shot to the 1.3365-70 area, or a near one-week high in the last hour.

Following a brief consolidation through the first half of the trading action on Tuesday, the GBP/USD pair regained positive traction and is now looking to build on its recent bounce from a YTD low. The uptick was exclusively sponsored by the heavily offered tone surrounding the US dollar, weighed down by a steep decline in the US Treasury bond yields.

The detection of a new and possibly vaccine-resistant coronavirus variant – Omicron – seemed to have dashed market expectations for an early policy tightening by the Fed. This, along with the global flight to safety, dragged the yield in the benchmark 10-year US government bond to a three-week low, around the 1.45% threshold, and undermined the greenback.

Meanwhile, worries about the potential economic fallout from the spread of the new coronavirus variant took its toll on the global risk sentiment. This was evident from a selloff in the equity markets, though did little to provide any respite to the safe-haven USD. That said, persistent Brexit-related uncertainties might cap gains for the GBP/USD pair.

The UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain could act as a headwind for the British pound. This, in turn, warrants some caution for aggressive bullish traders and before confirming that the GBP/USD pair has formed a near-term bottom near the 1.3280-75 region.

There isn't any major market-moving economic data due for release from the UK, while the US economic docket features Chicago PMI and the Conference Board's Consumer Confidence Index. The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee, which could influence the USD and provide some impetus to the GBP/USD pair.

Technical levels to watch