The GBP/USD pair struggles to capitalize on its modest intraday positive move and trims a part of the early gains to the highest level since February 14 touched this Monday. The pair trades just below the 1.2200 mark through the first half of the European session and remains at the mercy of the US Dollar (USD) price dynamics.
As depicted by a weaker tone around the equity markets, the general risk-off mood drives some haven flows toward the Greenback and acts as a headwind for the GBP/USD pair. Despite the recent emergency liquidity measures and multi-billion-dollar lifelines for troubled US and European banks, market participants remain concerned about the contagion risk and the possibility of a full-blown global banking crisis.
This, in turn, continues to weigh on investors’ sentiment and benefits traditional safe-haven assets, including the USD. That said, amid diminishing odds for a more aggressive policy tightening by the Fed, the ongoing slump in the US Treasury bond yields keeps a lid on any further gains for the USD and continues to lend support to the GBP/USD pair.
Investors now seem convinced that the US central bank will soften its hawkish rhetoric, especially after the recent collapse of two mid-size US banks – Silicon Valley Bank and Signature Bank. This, along with the anti-risk flow, leads to a further steep decline in the US Treasury bond yields and might cap the USD.
Traders also seem reluctant to place aggressive bets and might prefer to move ahead of this week’s key central bank event risks to the sidelines. The Fed is scheduled to announce its decision at the end of a two-day monetary policy meeting on Wednesday. It is widely expected to deliver a smaller 25 bps rate hike amid the worsening economic conditions. This will be followed by the Bank of England (BoE) meeting on Thursday, which should provide some meaningful impetus to the GBP/USD pair and help determine the next leg of a directional move.