GBPUSD eases from multi-day high, still well bid below mid-1.1400s amid softer USD

• GBPUSD gains traction for the second successive day amid sustained USD selling.
• Hopes for less aggressive Fed rate hikes, the risk-on impulse weighs on the buck.
• The BoE's gloomy outlook might act as a headwind for the Sterling and cap gains.

The GBPUSD pair attracts some buying following an early dip to the 1.1290 area on Monday and is building on the previous session's goodish rebound from a two-week low. This marks the second successive day of a positive move and lifts spot prices to the 1.1475 region, or a three-day high during the mid-European session.

The US Dollar adds to the heavy losses suffered following the NonFarm Payrolls (NFP) release on Friday, and drops to over a one-week low, which, in turn, is seen as a key factor pushing the GBPUSD pair higher. The mixed results from Friday's NFP release fueled speculations that the Federal Reserve might slow the pace of its policy tightening. This, along with a generally positive tone around the equity markets, continues to weigh on the safe-haven greenback.

That said, worries about the headwinds stemming from China's commitment to maintaining its economically disruptive zero-COVID policy might keep a lid on the optimism. Moreover, the markets are still pricing in the possibility of at least a 50 bps Fed rate hike move in December. This remains supportive of elevated US Treasury bond yields, which should act as a tailwind for the buck and cap the upside for the GBPUSD pair.

Apart from this, the Bank of England's dovish rate hike last week warrants some caution for aggressive bullish traders. It is worth recalling that the UK central bank raised interest rates by 75 bps - its most forceful act to tame inflation since 1989 - but indicated a lower terminal peak than is currently priced into markets. Moreover, the BoE said that it expects a recession to last for all of 2023 and the first half of 2024.

This, in turn, suggests that any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. There isn't any major market-moving economic data due for release on Monday. Hence, the US bond yields, along with the broader market risk sentiment, will play a key role in influencing the USD price dynamics and produce short-term trading opportunities around the GBPUSD pair.

From a technical standpoint, the pair formed a two-bar reversal when it pivoted and rose prior to the weekend. Follow-through buying today is currently providing confirmation for this bullish pattern and suggests the pair may have higher to go, assuming the day ends on an equally strong note. Tough resistence can be seen at about 1.1510 provided by the trend line for the longer-term downtrend that has been playing out for most of 2022, and the Cable will need to break definatively above this level to solidify its advance and open up the ground above. 

Technical levels to watch