Title: GBP/USD refreshes daily high, looks to build on momentum beyond 1.2200 amid softer USD

August 3, 2022 03:45 AM ET

By: AnalysisWatch

The GBP/USD stops the downtrend this week from the highest level since late June and attracts some buying near the 1.2135 area, the weekly low reached on Wednesday. The pair refreshed its daily high during early European trade, with bulls now trying to build momentum above the 1.2200 level.

The US dollar struggled to capitalize on the overnight recovery from a multi-week low and trended weaker on Wednesday, which in turn provided support to the GBP/USD pair. A modest recovery in global risk sentiment, reflected in generally positive sentiment in equity markets, is weakening the safe-haven dollar.

Still, a combination of factors could limit deeper USD losses and cap the major's uptrend, at least for now.

Against the backdrop of growing recession fears, rising diplomatic tensions related to the Taiwan visit by U.S. House of Representatives Speaker Nancy Pelosi are likely to curb any optimism in the markets. In addition, aggressive comments overnight from Fed officials suggesting that interest rates will be raised soon could provide a tailwind for the dollar. This could discourage bulls from making aggressive bets on the GBP/USD pair ahead of the central bank event.

The Bank of England is expected to announce its monetary policy decision on Thursday, raising interest rates by 50 basis points, which would be the largest increase since 1995. However, markets seem divided on further rate hikes. The main focus is therefore likely to be on the short-term political outlook, which will influence the British pound. Traders would then focus on Friday's release of the highly anticipated monthly U.S. jobs report, popularly known as the NFP.