• GBPUSD opens with a modest bearish gap, though lacks strong follow-through selling.
• Elevated US bond yields, a softer risk tone underpins the USD and acts as a headwind.
• Diminishing odds for a more aggressive Fed rate hikes caps the USD and lends support.

The GBPUSD pair struggles to capitalize on Friday's strong recovery from a two-week low and opens with a modest bearish gap at the start of a new week. Spot prices, however, manage to hold above the 1.1300 mark through the early North American session and remain at the mercy of the US Dollar price dynamics.

Investors turn cautious amid concerns about headwinds stemming from China's commitment to maintaining its economically disruptive zero-COVID policy. This, along with elevated US Treasury bond yields, helps revive the USD demand and exerts some downward pressure on the GBPUSD pair. That said, diminishing odds for another supersized 75 bps Fed rate hike in December keep a lid on any further gains for the buck and offer some support to the major.

The closely-watched NFP showed that the US economy added 261K jobs in October against expectations for 200K. This, however, was well below the previous month's upwardly revised reading of 315K. Furthermore, the unemployment rate rose to 3.7% from 3.5% in September and Average Hourly Earnings slowed to 4.7% YoY in October from 5% previous. The mixed results fueled speculations that the Fed could slow the pace of future rate hikes.

Adding to this, Chicago Fed President Charles Evans noted that it is time for the US central bank to shift to smaller rate hikes to avoid tightening policy more than needed. This, in turn, warrants some caution for the USD bulls and placing aggressive bearish bets around the GBPUSD pair. Meanwhile, the upside potential for spot prices remains limited, at least for the time being, in the wake of the Bank of England's dovish interest rate hike last Thursday.

It is worth recalling that the UK central bank decided to raise interest rates by 75 bps - its most forceful act to tame inflation since 1989. In the accompanying policy statement, the BoE said it expects a recession to last for all of 2023 and the first half of 2024, also indicating a lower terminal peak than is currently priced into markets. This might continue to undermine the Sterling and cap the GBPUSD pair amid absent relevant macroeconomic releases.

Technical levels to watch