• Geopolitical angst and hawkish Fed speak saw GBP/USD fall back from early highs to under 1.3100 on Tuesday.
  • Cable continues to fail attempts to push above its 21DMA and continues to threaten a test of recent 1.3050 lows.

GBP/USD fell back below the 1.3100 level on Tuesday as hawkish commentary from Fed Vice Chair Lael Brainard sparked a rally in US yields that helped the US dollar gain ground across the board. That means that the pair has failed to hold above its 21-Day Moving Average now for a fifth successive session. A current levels near 1.3070, the pair trades lower by about 0.3% on the day, a near-100 pip pullback from earlier session highs in the 1.3160s.

The pound got some short-lived support during early European trade after much stronger than expected final UK March PMI survey from IHS Markit. But pessimism regarding Russo-Ukraine peace talks in wake of accusations that the Russian military has committed war crimes, plus worries as the EU announced a proposal for tougher sanctions on Russia limited the upside potential for European FX in early trade. GBP/USD bears will now be eyeing a test of last week’s lows at 1.3050, with focus shifting to Wednesday’s release of the minutes of the last Fed meeting.

Traders will recall that the last Fed meeting was very hawkish and this bias towards favouring a much faster pace of monetary tightening is likely to be evident in the meeting accounts. Whilst that shouldn’t come as a surprise, it could easily keep a bid underneath the buck and US yields on the front foot. Given the BoE’s softening rhetoric on the need to tighten monetary policy settings further as of late, which contrasts sharply with the Fed, there is plenty of downside risk for GBP/USD.

Thursday’s speech from BoE Chief Economist Huw Pill will be eyed in this context. Evidence of further Fed/BoE policy divergence could send GBP/USD back to test annual lows in the 1.3000 area sometime later this week. Many analysts are calling for a break lower into the upper 1.20s in the coming months.

This article was originally published by Fxstreet.com.Read the original article here.


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