GBP/USD retreats after hitting one-week high, drops back closer to mid-1.3000s

The GBP/USD pair climbed to a one-week high, around the 1.3080-1.3085 region during the early European session, albeit quickly retreated a few pips thereafter. The pair was last seen trading just a few pips above the daily low, around the 1.3055 region.

The US dollar extended the previous day's sharp retracement slide from its highest level since March 2020 and witnessed heavy selling for the second successive day on Wednesday. A generally positive tone around the equity markets was seen as a key factor that undermined the safe-haven buck, which, in turn, assisted the GBP/USD pair to attract some buying near the 1.3040 region.

The uptick, however, lacked bullish conviction amid some cross-driven weakness stemming from a sharp spike in the EUR/GBP cross. On the other hand, a goodish pickup in the US Treasury bond yields, bolstered by hawkish Fed expectations, should act as a tailwind for the buck. This further warrants some caution before placing aggressive bullish bets around the GBP/USD pair.

In fact, the markets seem convinced that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation and have been pricing in multiple 50 bps rate hikes. The bets were reinforced by comments by a slew of influential FOMC members since the beginning of this week. Hence, the focus will remain glued to Fed Chair Jerome Powell's speech later during the US session.

Traders will further take cues from the Bank of England Governor Andrew Bailey's appearance at an event in Washington DC amid absent relevant market-moving economic releases from the UK. Meanwhile, the US economic docket features the release of the Philly Fed Manufacturing Index and the usual Weekly Initial Jobless Claims later during the early North American session.

Technical levels to watch