GBP/USD consolidates in a range, holds above 1.2300 mark amid subdued USD demand

The GBP/USD pair struggles to gain any meaningful traction on Wednesday and oscillates in a narrow band through the early part of the European session. Spot prices hold above the 1.2300 mark, though remain well within the striking distance of a one-week low touched on Tuesday.

A softer risk tone benefits the US Dollar's relative safe-haven status against its British counterpart and turns out to be a key factor acting as a headwind for the GBP/USD pair. The USD bulls, however, seem reluctant amid firming expectations for a less aggressive policy tightening by the Fed. In fact, the markets have been pricing in a greater chance of a smaller 25 bps Fed rate hike in February. This, in turn, should keep a lid on any meaningful upside for the greenback.

Apart from this, speculations that elevated consumer inflation will maintain pressure on the Bank of England (BoE) to continue raising interest rates should limit the downside for the GBP/USD pair. In fact, the UK Office for National Statistics reported last week that the core CPI in the UK stayed at 6.3% in December or more than three times the BoE's 2% target. This, in turn, favors bullish traders and supports prospects for the emergence of some dip-buying around the major.

Nevertheless, the GBP/USD pair, for now, seems to have stalled the recent corrective pullback from the vicinity of mid-1.2400s, or its highest level since June 2022 touched on Monday. There isn't any major market-moving US economic data due on Wednesday. That said, the broader market risk sentiment might drive the USD and provide some impetus to the major. The focus, meanwhile, remains on the Advance US Q4 GDP print and the Core PCE Price Index on Thursday and Friday, respectively, which should influence the Fed's rate-hike path and determine the near-term trajectory for the buck.

Technical levels to watch