**GBP/USD Trades With Positive Bias Above 1.3300 Amid Softer USD: Upside Seems Limited**
*Adapted and expanded from the original article by Haresh Menghani, FXStreet*
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## Overview
The GBP/USD pair displayed a modestly positive tone early in the trading day, holding firm above the 1.3300 level as market participants weighed recent developments surrounding the US dollar and the British pound. The improved sentiment around the pound was attributed to the broad-based softer tone in the US dollar, which weakened against major peers following a retracement in US Treasury yields. However, although GBP/USD managed to recover from its overnight lows, upside prospects appeared capped by uncertainties on the macroeconomic and political fronts.
This article will provide an in-depth analysis of the current GBP/USD scenario, examining the forex market context, technical picture, and key factors influencing price action, while also offering insight into short-to-medium term outlooks.
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## Forex Market Context
### The US Dollar’s Softness
The minor recovery in GBP/USD was largely propelled by the broad-based weakness in the US dollar. The greenback retreated on the back of a pullback in US Treasury bond yields. Several factors contributed to the dollar’s softer tone:
– Renewed speculation that the US Federal Reserve may taper its aggressive policy stance if signs of economic moderation persist
– Disappointing economic data releases that tempered expectations of imminent interest rate hikes
– Diminished risk appetite that eased investors’ demand for safety, reducing upward pressure on the dollar
As a result, other major currencies, including the British pound, benefited from this correction in the dollar’s strength, propelling GBP/USD above the 1.3300 threshold.
### UK Macro and Brexit Developments
The British pound’s resilience over the session can also be traced to:
– Market relief over the UK’s progress in containing coronavirus cases, supporting reopening prospects
– Expectations that the Bank of England could be among the first major central banks to tighten monetary policy, though this view is balanced by ongoing caution among policymakers
– Improved sentiment surrounding a potential EU-UK trade agreement regarding Northern Ireland, although real progress remains to be seen as negotiations continue
Despite these supportive factors, traders remain wary due to lingering concerns regarding inflation and economic recovery, as well as political risks tied to the post-Brexit landscape.
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## Key Drivers Behind GBP/USD’s Latest Moves
### 1. US Dollar Pullback
A subdued US dollar has been the principal driver behind GBP/USD’s slight gains. This weakness followed a dip in US Treasury yields, as markets reconsidered the likelihood of rapid monetary tightening by the US Federal Reserve. The recent spate of softer-than-expected US macroeconomic indicators gave further ammunition to the dovish camp.
Key considerations for the dollar include:
– US consumer confidence and retail sales data reflecting uneven recovery
– Suggestions from certain Fed officials that policy normalization could be gradual, possibly postponing rate hikes until price stability and full employment objectives are closer to being met
– Mixed signals from the bond market about near-term inflation expectations
### 2. Bank of England Policy and UK Economic Outlook
At the same time, market participants are closely monitoring the Bank of England’s rhetoric and UK macroeconomic data, which have provided mixed clues about future policy direction.
**Positive factors for the pound:**
– The BoE is widely viewed as one of the more hawkish central banks among its G10 peers, stoking occasional bets on rate hikes
– UK inflation readings have picked up, strengthening arguments for the normalization of monetary policy
– Quarterly growth and labor market indicators suggest ongoing, albeit uneven, recovery
**Limiting factors:**
– The BoE’s caution about underlying economic vulnerabilities, including supply chain disruption and rising energy costs
– Concerns over renewed pandemic-related restrictions as winter approaches
– Political headwinds from ongoing Brexit negotiations, particularly around the Northern Ireland Protocol
### 3. Brexit and Geopolitical Risks
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