GBP/USD fell 0.35% to 1.3480 on Monday, slipping away from the previous session's 7-week high at 1.3564, under pressure from dollar bulls emboldened by rising U.S. yields, though the hawkish bias on the front-end of the UK rate curve may cushion the downside for now.
Sterling was unwinding recent gains as it approached key technical levels, including the daily cloud top at 1.3556 and 100-DMA at 1.3561, just below the late-December high of 1.3564.
The BoE remains one of the few major central banks expected to remove accommodation along with the Fed, an outlook that helped lift the pound off its early-December lows by 1.3162 and which lends near-term support.
But UK and U.S.
rates diverge significantly after 2022, with Eurodollar futures 0#ED: indicating 3-month rates at 1.68% in December 2023 and 1.8% in Dec 2024, while UK rates 0#FSS: are seen at 1.24% in December 2023 and 1.05% in December 2024.
With the UK rate advantage waning toward the end of 2022, the pound is likely to lose some of its late-2021 luster, unless Omicron-related economic issues dial back the Fed's relatively hawkish hike path.
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