This site describes the symptoms:

http://www.volvospeed.com/Repair/pnpswitch.htm

The orange up arrow light flashing on dash and the transmission locked
into limp home mode (it locks into 3rd gear so you will accelerate
slowly) are the two big signs. Often seen first cold morning. Once car
warms up it can be turned off and restarted and problem is often
cleared. I also found that manually shifting (say D to 3) could
cause the up arrow to flash when ours failed.

I've also read, here, that when cold the car will hold 1st gear shifts
a bit longer to speed up the engine warm up process. But it won't
lock in 1st. Thought I'd mention that in case that is what you are seeing.