GBP/USD edges lower to 1.2170 area amid a modest pickup in the USD demand

The GBP/USD pair turns lower for the second successive day on Friday and moves further away from the weekly high, around the 1.2275 area touched in the aftermath of the softer US CPI report. The steady intraday descent drags spot prices to a two-day low, around the 1.2170-1.2165 region during the first half of the European session.

The US dollar gains some positive traction on the last day of the week, which, in turn, attracts fresh selling around the GBP/USD pair. Despite the latest signs of easing US inflation, the recent hawkish comments by several Fed officials suggest that the US central bank would tighten its monetary policy further. The prospects for additional rate hikes by the Fed push the US Treasury bond yields to a multi-week high and offers some support to the greenback.

The British pound, on the other hand, continues to be undermined by the Bank of England's gloomy economic outlook. It is worth recalling that the UK central bank last week painted a particularly bleak picture and indicated that a prolonged recession in Britain would start in the fourth quarter. This, to a larger extent, offsets Friday's mostly better-than-expected UK macroeconomic releases and does little to impress bullish traders or lend any support to the GBP/USD pair.

Market participants, however, remain divided over the size of the next rate hike by the Fed. This, along with the risk-on impulse, seems to cap gains for the safe-haven USD and offers some support to the GBP/USD pair. Nevertheless, the fundamental backdrop favours bearish traders and supports prospects for a further depreciating move. Traders now eye the Preliminary Michigan US Consumer Sentiment Index for a fresh impetus later during the early North American session.

Technical levels to watch