GBP/USD:FUNDAMENTAL INFOS + TECHNICAL ANALYSIS | SHORT VIEW

GBP/USD Forecast: Bears could pause on hopes for diplomacy in Ukraine, ahead of BoE/FOMC

GBP/USD dropped to a fresh 16-month low during the Asian session on the first day of a new week.
The Russia-Ukraine war underpinned the safe-haven USD and exerted some downward pressure.
Slightly oversold conditions warrant some caution for bears ahead of the BoE and FOMC meetings.
The GBP/USD pair prolonged its recent bearish trajectory and kicked off the new week on a downbeat note. This marked the third successive day of a negative move - also the seventh in the previous eight - and dragged spot prices to 1.3000 neighbourhood, or the lowest level since November 2020 during the Asian session. The Russia-Ukraine conflict, so far, has shown no signs of easing. In fact, a barrage of Russian missiles hit a large Ukrainian base near the border with NATO member Poland on Sunday. This continued underpinning the US dollar's status as the global reserve currency and was seen as a key factor that exerted downward pressure on the major.

The greenback also drew support from an extension of a strong move up in the US Treasury bond yields. The recent monster gains in commodity prices following Russia's invasion of Ukraine has been fueling concerns about a major inflationary shock. This, in turn, reinforced bets for an imminent start of the policy tightening cycle in March and acted as a tailwind for the US bond yields. Hence, the market focus now shifts to the upcoming two-day FOMC monetary policy meeting, starting this Tuesday, which will play a key role in influencing the near-term USD price dynamics. In the meantime, signs of stability in the financial markets might cap gains for the buck.

Russia and Ukraine gave their most upbeat assessments after weekend negotiations. In fact, Ukrainian negotiator Mykhailo Podolyak said that Russia is already beginning to talk constructively and that we will achieve some results in a matter of days. Moreover, a Russian delegate to the talks, Leonid Slutsky noted that they had made significant progress and it was possible the delegations could soon reach draft agreements. The incoming positive headlines fueled the latest optimism, which was evident from a generally positive tone around the equity markets and dented demand for traditional safe-haven assets. This, however, did little to lend any support to the pair.

Even expectations that the Bank of England will hike interest rates at its meeting later this week failed to impress bullish traders or ease the bearish pressure surrounding the major. The market bets were reaffirmed by Friday's mostly upbeat UK macro releases, showing that the economy bounced back sharply and expanded by 0.8% in January. Adding to this, the UK industrial output rose 0.7% MoM in January, driven by the 0.8% growth in manufacturing production. Furthermore, services sector output increased by 0.8% during the reported month as against a 0.5% fall recorded in December. This, in turn, suggest that the BoE rate hike is fully priced in the markets.

Nevertheless, traders might refrain from placing aggressive directional bets heading into the key central bank event risks. In the meantime, fresh developments surrounding the Russia-Ukraine saga will be looked upon for some meaningful trading opportunities amid absent relevant market-moving economic releases on Monday.