• GBP/USD gains traction for the second straight day and climbs to a nearly two-week high.
• A positive risk tone, subdued US bond yields weigh on the USD and remain supportive.
• The disappointing UK macro data adds to recession fears and might cap any further gains.

The GBP/USD pair catches fresh bids near the 1.1600 mark on Monday and climbs to a near two-week high during the first half of the European session. The pair is currently trading around the 1.1700 round figure and is looking to build on its recent bounce from the lowest level since 1985 touched last week.

The US dollar prolongs its sharp retracement slide from a two-decade high and remains under intense selling pressure on the first day of a new week. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, dives to a fresh monthly low. This turns out to be a key factor pushing the GBP/USD pair higher for the second successive day.

Given that the markets have already priced in a supersized 75 bps rate hike at the next FOMC meeting on September 20-21, a generally positive tone around the equity markets is seen weighing on the safe-haven greenback. Apart from this, the ongoing USD corrective decline lacks any obvious fundamental catalyst and is more likely to remain limited amid elevated US Treasury bond yields.

Furthermore, the worsening outlook for the UK economy might further contribute to keeping a lid on any further gains for the GBP/USD pair. The worries were further fueled by the mostly disappointing UK macro data released earlier this Monday. The UK Office for National Statistics reported that the economy expanded by 0.2% in July, less than consensus estimates for a 0.5% growth.

Separately, the UK Manufacturing and total Industrial Production fell short of expectations, arriving at 0.1% MoM in July and -0.3%, respectively. This warrants caution before positioning for any further gains. Nevertheless, the GBP/USD pair has now rallied nearly 300 pips from the 1.1400 neighbourhood, or a 35-year low set last Wednesday and remains at the mercy of the USD price dynamics.

Investors might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the US consumer inflation figures, due on Tuesday. Traders will further take cues from this week's key UK macro releases, including the crucial CPI report on Wednesday. This, in turn, will play a key role in influencing the GBP/USD pair and help determine the next leg of a directional move.

Technical levels to watch