GBP/USD struggles for direction, stuck in a range around 1.3700 mark

• GBP/USD witnessed a subdued/range-bound price action through the early European session.
• The continuous surge in the US bond yields underpinned the USD and acted as a headwind.
• The downside remains cushioned, warranting some caution for aggressive bearish traders.

The GBP/USD pair surrendered modest intraday gains and was last seen trading in the neutral territory, around the 1.3700 mark during the early European session.

The pair continued with its struggle to find acceptance or build on the momentum beyond the 1.3700 mark and quickly retreated around 20 pips from the daily swing highs touched in the last hour. The US dollar continued drawing support from surging US Treasury bond yields and shot to over one-month tops on Tuesday. This, in turn, was seen as a key factor that acted as a headwind for the GBP/USD pair.

The US Treasury bond yields have been moving higher after the Fed hinted that it may soon taper its asset purchases and the dot plot showed policymakers' inclination to raise interest rates in 2022. In fact, the yield on the benchmark 10-year US government bond shot to the highest level since June 17, around 1.544% during the first half of the trading action on Tuesday and underpinned the greenback.

Meanwhile, persistent worries about China Evergrande Group's unsolved debt crisis weighed on investors' sentiment and kept a lid on the optimism. This was evident from a cautious mood around the equity markets, which further benefitted the safe-haven USD. That said, the lack of any strong selling warrants caution before positioning for any meaningful slide for the GBP/USD pair, at least for now.

There isn't any major market-moving economic data due for release on Tuesday, either from the UK or the US, leaving the GBP/USD pair at the mercy of the USD price dynamics. Later during the early North American session, Fed Chair Jerome Powell's testimony before the Senate Banking Committee might influence the greenback and produce some short-term trading opportunities around the GBP/USD pair.

Technical levels to watch