- GBP/USD gained some positive traction on Wednesday amid modest USD downtick.
- Retreating US bond yields and a positive risk tone undermined the safe-haven buck.
- Fed rate hike bets should limit the USD losses and cap the pair ahead of the US CPI.
The GBP/USD pair traded with a mild positive bias through the early European session and was last seen hovering near the daily high, just below mid-1.2300s.
The ongoing retracement slide in the US Treasury bond yields, along with a generally positive tone around the equity markets, undermined the safe-haven US dollar. This, in turn, was seen as a key factor that assisted the GBP/USD pair to attract some buying near the 1.2300 mark on Wednesday. That said, any meaningful upside still seems elusive, warranting caution before placing intraday bullish bets.
The UK economic think-tank, National Institute of Economic and Social Research (NIESR), said that Britain is on course to enter a technical recession in the second half of 2022. The NIESR now forecasts that the UK GDP will contract 0.2% in Q3 and 0.4% in the last three months of the year. This comes on the back of the Bank of England's gloomy outlook, which should act as a headwind for the British pound.
Apart from this, expectations that the Fed would need to take more drastic action to bring inflation under control should limit the USD losses and further contribute to capping the GBP/USD pair. In fact, the markets are still pricing in a further 200 bps rate hike for the rest of 2022 amid worries about tight global supply chains resulting from China's zero-covid policy and the ongoing war in Ukraine.
Hence, the focus will remain glued to the release of the latest US consumer inflation figures, due later during the early North American session. The US CPI report could indicate how aggressively the Fed would tighten its monetary policy. This, in turn, would influence the near-term USD price dynamics and provide a fresh directional impetus to the GBP/USD pair.
Technical levels to watch
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