GBP/USD consolidates in a range around 1.2400, awaits US Q4 GDP for fresh impetus

• GBP/USD oscillates in a narrow trading band through the early European session on Thursday.
• Bets for smaller Fed rate hikes keep the USD bulls on the defensive and lend some support.
• Traders prefer to wait for the release of the Advance Q4 GDP before placing aggressive bets.

The GBP/USD pair plateaus after the previous day's positive move and oscillates in a narrow range through the early European session on Thursday, in a sort of mini bull flag pattern. Spot prices manage to hold above the 1.2400 mark and remain well within the striking distance of the highest level since June 2022 set on January 23. The overall medium-term trend remains bullish with the default expectation that this will continue. A break above the short-term range's highs at 1.2418, would open the way to the January high at 1.2447, and most likely beyond. Much depends on data out of the US, with two key releases - Q4 GDP and Core PCE - coming out of the US to end the week. 

The underlying bearish sentiment surrounding the US Dollar turns out to be a key factor that continues to act as a tailwind for the GBP/USD pair. In fact, the USD Index, which tracks the Greenback against a basket of currencies, languishes near an eight-month low amid firming expectations for a less aggressive policy tightening by the Fed. The markets now seem convinced that the US central bank will soften its hawkish stance and have been pricing in a smaller 25 bps rate hike in February. This keeps a lid on the recent move up in the US Treasury bond yields and is seen undermining the Greenback.

The British Pound, on the other hand, draws support from speculations that elevated consumer inflation will maintain pressure on the Bank of England (BoE) to continue raising interest rates. This, in turn, favours the GBP/USD bulls and supports prospects for a further near-term appreciating move. Traders, however, seem reluctant and prefer to move to the sidelines ahead of the Advance US Q4 GDP print, due later during the early North American session. This will be followed by the release of the US Core PCE Price Index on Friday, which will play a key role in influencing the Fed's rate strategy.

The focus will then shift to next week's key central bank event risks - the outcome of a two-day FOMC policy meeting on Wednesday and the BoE decision on Thursday. This will help determine the next leg of a directional move for the GBP/USD pair. In the meantime, the USD price dynamics might provide some impetus in the absence of any relevant market-moving economic releases from the UK. Nevertheless, the fundamental backdrop seems tilted firmly in favour of bullish traders, suggesting that any meaningful pullback is more likely to get bought into and remain limited, at least for the time being.

Technical levels to watch