GBP/USD quickly rebounds from sub-1.3000 levels. However, upside potential seems limited

USD/GBP saw a positive intraday rebound from below-1.3000 levels on Tuesday.

GBP/USD quickly rebounds from sub-1.3000 levels. However, upside potential seems limited

The USD bulls remained on the defensive and extended support with softening US bond yields.

A more aggressive Fed would limit USD losses and keep the major in check.

The GBP/USD pair gained over 50 pips after the European session low, and shot to a new daily high in the 1.3040 area within the hour.

The pair showed resilience again below the psychological mark of 1.3000 and managed a positive intraday bounce from the earlier Tuesday's four-day low. This allowed the GBP/USD pair break its losing streak of three days and reverse large portions of the previous day's losses. A softening tone around the yields on US Treasury bonds gave some support to spot prices, helping to ease the US dollar a little from its two-year high.

The safe-haven dollar was further undermined by signs of stability in equity markets. The British pound, on the other hand, received support from cross-driven strength due to a huge rally in the GBP/JPY exchange. This was another reason for the modest intraday rise in GBP/USD. However, it is still difficult to see any significant upside given the expectation that the Fed will tighten its monetary policy faster.

The markets are convinced that multiple 50-bps rate increases by the Fed will be necessary to reduce stubbornly high inflation. On Monday, James Bullard, the President of St. Louis, stated that the US central banks shouldn't exclude rate increases of 75 basis points. This should be a tailwind to the US bond yields, and limit the downside of the buck. This suggests that the attempted recovery of the GBP/USD pair might still be viewed as a selling opportunity.

The USD price dynamics will continue playing a major role in the GBP/USD pairing, even if there are no significant market-moving economic releases from UK. Later in the North American session traders will be influenced by the US housing market data as well as a speech scheduled by Charles Evans, Chicago Fed President. These, together with the US bond yields, and the wider risk sentiment, will all drive the USD, and provide some trading opportunities.

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