GBP/USD refreshes daily top, retakes 1.2100 mark amid renewed USD selling bias

• GBP/USD reverses an intraday dip amid the emergence of fresh selling around the USD.
• Bets for less aggressive rate hikes by the Fed, sliding US bond yields weigh on the buck.
• China’s COVID-19 jitters could offer support to the safe-haven USD and cap the major.

The GBP/USD pair attracts some dip-buying near the 1.2025 region on Monday and climbs to a fresh daily peak during the early part of the European session. The pair is currently placed around the 1.2100 mark and remains well within the striking distance of its highest level since August 12 touched last week.

Following a modest intraday uptick, the US Dollar comes under some renewed selling pressure and is seen as a key factor lending support to the GBP/USD pair. A dovish assessment of the November FOMC meeting minutes released last week cemented bets for a relatively smaller 50 bps rate hike in December. This is evident from a further decline in the US Treasury bond yields and continues to weigh on the greenback.

The British Pound, on the other hand, continues to draw support from firming expectations that the Bank of England will continue to raise borrowing costs to combat stubbornly high inflation. This provides an additional lift to the GBP/USD pair and remains supportive. That said, a bleak outlook for the UK economy could act as a headwind for the STerling and cap the upside for the major, at least for now.

Apart from this, the prevalent risk-off mood - amid worries about the worsening COVID-19 situation - could offer some support to the safe-haven buck and keep a lid on the GBP/USD pair. In the absence of any major market-moving economic releases, either from the UK or the US, the fundamental backdrop warrants some caution for aggressive traders and before positioning for any further appreciation.

Market participants now look to speeches by influential FOMC members - St. Louis Fed President James Bullard and New York Fed President John Williams. This, along with the US bond yields and the broader risk sentiment, will drive the USD and provide some impetus to the GBP/USD pair. The focus, however, will be on this week's important US macro releases scheduled at the beginning of a new month.

Technical levels to watch