GBP/USD bounces off multi-week lows, upside seems limited

The GBP/USD pair reversed an intraday dip to fresh six-week lows and was last seen trading in the neutral territory, below the key 1.4000 psychological mark.

The pair witnessed some selling during the early European session and dropped to the lowest level since May 7, though lacked any strong follow-through. The downtick was exclusively sponsored by strong follow-through buying around the US dollar, which remained well supported by a sudden hawkish shift by the Fed.

In fact, the Fed stunned investors and signalled that it might raise interest rates at a much faster pace than anticipated earlier. The so-called dot plot indicated two rate hikes by the end of 2023 as against March's projection for no increase until 2024. Moreover, seven members pencilled in a rate hike or more in 2022.

Meanwhile, the Fed's super hawkish pivot dampened investors' appetite for perceived riskier assets and further benefitted the greenback's relative safe-haven status. However, a modest decline in the US Treasury bond yields held the USD bulls from placing aggressive bets and helped limit any further losses for the GBP/USD pair.

That said, any meaningful recovery still seems elusive amid concerns about the EU-UK collision over Northern Ireland protocol. In the latest developments, the UK Prime Minister Boris Johnson said on Wednesday that they will have to take steps to make sure the post-Brexit trade between Britain and N. Ireland is uninterrupted.

This comes on the back of the UK government's decision to push back the timeline for the final stage of easing lockdown measures to July 19. The move dampened prospects for a strong UK economic recovery from the pandemic. This, in turn, might continue to act as a headwind for the British pound and cap gains for the GBP/USD pair.

Market participants now look forward to the US economic docket – featuring the release of the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims. This, along with the US bond yields and the broader market risk sentiment, might influence the USD price dynamics and provide some impetus to the GBP/USD pair.

Technical levels to watch