British Pound bulls seem hesitant above 1.3300 as USD steadies on Fed, geopolitical risks

The GBP/USD pair bounces off the 1.3300 neighborhood at the start of a new week, stalling Friday's modest pullback from its highest level since September 23. Spot prices, however, lack follow-through and currently trade around the 1.3330 region, unchanged for the day as the US Dollar (USD) selling seems to have abated.

The USD dropped to a two-week low on Friday, snapping a four-week winning streak, amid the recent sharp decline in US government bond yields from multi-year highs. Moreover, US Federal Reserve (Fed) Chair Kevin Warsh’s unwillingness to provide any signals on further policy moves led to a reduction in odds for policy tightening later this month and outweighed significantly hotter-than-expected inflation reports, which keep USD bulls on the back foot.

Market players, however, are still pricing in over a 90% chance that the US central bank will raise borrowing costs in December amid inflation risks stemming from rising energy prices. In fact, crude oil prices rallied to a nearly one-month high on Friday amid escalating Middle East tensions. Iran’s Islamic Revolutionary Guard Corps (IRGC) said on Sunday that an oil tanker caught fire and exploded after striking a naval mine in the Strait of Hormuz.

Furthermore, a secretary of Iran’s Supreme National Security Council, Mohsen Rezaei, warned that Tehran has prepared a new retaliation plan for any renewed US-Israeli attack. This keeps the geopolitical risk premium in play, lending some support to the safe-haven buck and capping the upside for the GBP/USD pair. That said, firming expectations of a 25 basis points (bps) Bank of England (BoE) rate hike in November should act as a tailwind for the British Pound (GBP).

GBP/USD daily chart

Technical Analysis

The GBP/USD holds below the 100-day Simple Moving Average (SMA) at 1.3390 and the 50.0% Fibonacci retracement at 1.3406, which keeps the broader tone bearish despite the recent bounce. Immediate topside pressure is reinforced by the nearby 38.2% Fibo. retracement at 1.3343, suggesting that rallies are likely to struggle while spot prices remain capped beneath this dense resistance band.

On the downside, first support emerges at the 23.6% retracement at 1.3265, with a deeper floor at 1.3138, where the Fibonacci cycle low comes in.