The GBP/USD currency pair has lost some of its recovery momentum after registering strong gains on Monday. Despite a courageous rally that saw the pair climb nearly 0.5% and break a six-day losing streak, it has since started to pull back, approaching the 1.2650 mark during the European session on Tuesday.
The uptick for GBP/USD was largely driven by a weakening US Dollar, which struggled to maintain its previous week’s gains following a decline in US Treasury bond yields. The absence of significant macroeconomic data releases further contributed to this decline in the dollar’s strength, allowing the pound to appreciate temporarily.
Adding to the market’s dynamics, Bank of England Governor Andrew Bailey is set to testify before the UK Treasury Select Committee. Following the recent Bank of England policy meeting, the central bank reduced its policy rate by 25 basis points to 4.75% while adjusting its inflation forecasts upwards. Governor Bailey emphasized the need for a gradual approach to rate cuts, aiming to evaluate various economic risks before making further adjustments.
Should Bailey indicate the possibility of another rate decrease in December, it may impede GBP/USD ’s ability to sustain its rebound. Conversely, if he remarks on a pause to assess the implications of the upcoming budget on inflation, it could provide upward momentum for the pair.
As the trading day progresses, key US economic data on Building Permits and Housing Starts for October is scheduled for release but is not expected to spark a significant reaction in the market.
From a technical perspective, GBP/USD has broken free from its descending regression channel, yet the Relative Strength Index (RSI) on the 4-hour chart has shown signs of weakening after approaching the neutral level of 50. Immediate resistance is positioned at 1.2700, while potential support levels can be found at 1.2630 and 1.2600, followed by 1.2530.
