GBP/USD hovers near its highest level since April 2022, remains below mid-1.2800s

The GBP/USD pair gains some positive traction for the fourth successive day on Monday and trades just below mid-1.2800s, near its highest level since April 2022 during the Asian session.

The British Pound (GBP) continues with its relative outperformance in the wake of expectations that the Bank of England (BoE) will continue with its policy tightening to stop inflation expectations from becoming entrenched. In fact, the BoE is universally anticipated to hike the benchmark rates by 25 bps on Thursday, to 4.75% or the highest since April 2008. Moreover, the markets are pricing in the possibility of a bigger, 50 bps lift-off, which, along with subdued US Dollar price action, acts as a tailwind for the GBP/USD pair.

The uncertainty over the Federal Reserve’s (Fed) rate-hike path fails to assist the USD to capitalize on Friday's rebound from over a one-month low and is seen as another factor lending support to the GBP/USD pair. The Fed signalled last week that borrowing costs may still need to rise by as much as 50 bps by the end of this year. That said, the incoming softer US macro data raised questions over how much headroom the Fed has to keep raising rates and fueled speculations that the end of the policy tightening cycle is nearing.

Hence, the market focus will remain glued to Fed Chair Jerome Powell's two-day congressional testimony on Wednesday and Thursday. Investors this week also confront the release of the latest consumer inflation figures on Wednesday. This will be followed by the highly-anticipated BoE monetary policy decision on Thursday. Apart from this, the flash PMI prints from the UK and the US should provide some meaningful impetus to the GBP/USD pair. Heading into the key data/event risks, bulls might refrain from placing fresh bets.

Furthermore, relatively lighter trading volumes on the back of a bank holiday in the US warrant some caution before positioning for an extension of the recent upward trajectory witnessed over the past three weeks or so. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the GBP/USD pair is to the upside and any meaningful corrective pullback might still be seen as a buying opportunity.

Technical levels to watch