GBP/USD trades with modest gains above 1.3200 mark, lacks follow-through

• GBP/USD seemed struggling to capitalize on the overnight goodish rebound from a one-year low.
• Fresh COVID-19 jitters pushed back BoE rate hike expectations and undermined the British pound.
• A modest pickup in the USD demand further held back traders from placing aggressive bullish bets.

The GBP/USD pair held steady above the 1.3200 mark through the Asian session, though the uptick lacked bullish conviction amid fresh COVID-19 jitters.

The pair struggled to capitalize on the overnight bounce from a one-year low, around the 1.3160 area and oscillated in a narrow trading band through the early part of the trading action on Thursday. The British pound was undermined by the imposition of tougher COVID-19 restrictions in England. Apart from this, a modest pickup in the US dollar demand capped any meaningful upside for the GBP/USD pair.

The UK Prime Minister Boris Johnson on Wednesday ordered people to work from home, wear masks in public places and use vaccine passes to slow the spread of the Omicron variant of the coronavirus. This comes on the back of the UK-EU impasse over the Northern Ireland Protocol, which seems to have dashed hopes for an imminent interest rate hike by the Bank of England at its meeting next week.

On the other hand, the USD continued drawing some support from growing market acceptance that the Fed would tighten its monetary policy sooner rather than later to contain stubbornly high inflation. This, along with a further recovery in the US Treasury bond yields and a cautious market mood, benefitted the safe-haven greenback and held back traders from placing bullish bets around the GBP/USD pair.

The fundamental backdrop seems tilted firmly in favour of bearish traders, suggesting that the attempted recovery might still be seen as a selling opportunity. In the absence of any major market-moving economic releases, either from the UK or the US, the USD price dynamics will continue to influence the GBP/USD pair and allow traders to grab some short-term opportunities.

Technical levels to watch