GBP/USD manages to hold above 1.2200, bulls remain on the sidelines amid geopolitical tensions

• GBP/USD reverses an Asian session dip to sub-1.2200 levels, albeit lacks any follow-through buying.
• Escalating geopolitical tension in the Middle East and hawkish Fed expectations underpin the USD.
• Expectations that the BoE is done hiking rates hold back the GBP bulls from placing aggressive bets.

The GBP/USD pair attracts some dip-buying following a modest bearish gap opening to sub-1.2200 levels on the first day of a new week and moves back closer to a one-week high touched on Friday. Spot prices currently trade around the 1.2220-1.2225 area and remain at the mercy of the US Dollar (USD) price dynamics.

The safe-haven buck did get a minor lift in the wake of the global flight to safety, fueled by escalating geopolitical tensions in the Middle East. The Hamas militant group in Gaza, Palestine, attacked Israeli towns in an unprecedented move on Saturday. In response, Israel launched airstrikes on Gaza and declared war against the Palestinian enclave of Gaza on Sunday, resulting in hundreds of casualties on both sides. That said, the uncertainty over the Federal Reserve’s (Fed) future rate-hike path holds back the USD bulls from placing aggressive bets and lends some support to the GBP/USD pair.

The closely watched US monthly jobs data (NFP) released on Friday showed that the economy added 336K jobs in September, higher than market estimates and the previous month’s upwardly revised reading of 227K. The data reaffirms bets for at least one more Fed rate hike move by the year-end, which remains supportive of elevated US Treasury bond yields and underpins the USD. Additional details of the report, however, revealed that wage growth remained moderate during the reported month and eased inflationary concerns. This, in turn, might allow the Fed to soften its hawkish stance.

Hence, investors keep a close eye on this week’s release of the FOMC meeting minutes on Wednesday, which will be followed by the latest US consumer inflation figures on Thursday. This will help investors determine the Fed’s next policy move, which, in turn, will determine the USD trajectory and provide a fresh impetus to the GBP/USD pair. In the meantime, expectations that the Bank of England (BoE) will again leave interest rates unchanged at its next meeting in November might continue to undermine the British Pound (GBP) and keep a lid on any meaningful upside for spot prices.

Technical levels to watch