GBP/USD Slides Back Closer To 1.2400 Amid Reviving USD Demand, Downside Seems Limited

The GBP/USD pair struggles to capitalize on the previous day’s goodish rebound of over 70 pips and attracts fresh sellers near the 1.2455-1.2460 region, or the 50-day Simple Moving Average (SMA), on Tuesday. Spot prices turn lower for the third straight day and trade just above the 1.2400 round-figure mark during the first half of the European session.

The prevalent cautious mood around the equity markets lends some support to the safe-haven US Dollar (USD), which, in turn, is a crucial factor acting as a headwind for the GBP/USD pair. Any meaningful upside for the USD seems elusive amid rising bets for an eventual pause in the Federal Reserve’s (Fed) policy tightening cycle. The current market pricing indicates a greater chance that the US central bank will leave interest rates unchanged next week.

It is worth recalling that a slew of influential Fed officials backed the case for skipping an interest rate hike at the June policy meeting last week. Adding to this, the disappointing release of the US ISM Services PMI on Monday, which fell to 50.3 in May, signals more cooling in the US economy and offers lesser headroom for the US central bank to keep raising interest rates. This leads to a further decline in the US Treasury bond yields and acts as a headwind for the Greenback.

Expectations that the Bank of England (BoE) will be far more aggressive in policy tightening to contain stubbornly high inflation might further limit the downside for the GBP/USD pair. This, in turn, suggests that any subsequent decline might still be seen as a buying opportunity and remain limited. Without any relevant market-moving economic releases from the US, the USD price dynamics will continue to play a crucial role in influencing the major.

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