Sterling is bid in Asia on Monday, driven by profit-taking and bargain-hunting after last week's 2.5% fall.
This may prompt a pause in the downtrend, allowing oversold technical signals to correct, as lower U.S. Treasury yields cap the dollar.
Last week's sterling fall was largely based on USD strength, as long-held short positions were unwound following the more hawkish Federal Reserve meeting. Fed speakers provided mixed signals on Friday, with a hawkish James Bullard nL2N2O0136, later countered by a dovish Neel Kashkari nW1N2MT03J.
Ten-year Treasury yields initially spiked to 1.594% after the FOMC, on the Fed's more hawkish outlook, but have since fallen sharply, sliding to 1.411% early Monday.
The perception that the Fed will be able to control inflation has prompted a rethink in markets that were positioned for higher rates.
The lower long-term Treasury yields should slow the rise in the USD, providing a floor for GBP/USD this week.
Technically daily momentum studies 5, 10 and 21 daily moving averages fall, which is a strong bearish trending setup.
The 1.3866 lower 21-day Bollinger band is a good indicator of an oversold market, especially as the move becomes more mature.
A period of consolidation is viable, as UST yields cap the dollar, while 1.3756, 61.8% of the 2021 rise, is key GBP/USD support.
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