GBP/USD struggles for a firm intraday direction, stuck in a range below mid-1.2300s

The GBP/USD pair finds some support ahead of the 1.2300 round figure on Thursday and for now, seems to have stalled the previous day's pullback from its highest level since December 14. The pair, however, struggles to gain any meaningful traction and remains confined in a range below mid-1.2300s through the mid-European session.

A fresh wave of the global risk-aversion trade - amid rising fears of a potential recession - benefits the US Dollar's relative safe-haven status and caps the upside for the GBP/USD pair. Investors remain concerned about headwinds stemming from the worst COVID-19 outbreak in China and the protracted Russia-Ukraine war. Adding to this, the weaker US macro data released on Wednesday further fuels worries about a deeper global economic downturn and take its toll on the risk sentiment.

The USD bulls, however, remain on the defensive amid firming expectations for a less aggressive policy tightening by the Fed. In fact, the markets now seem convinced that the US central bank will soften its hawkish stance and have been pricing in a smaller 25 bps rate hike in February. This leads to a further decline in the US Treasury bond yields and weighs on the buck. Furthermore, speculations that the Bank of England will stick to a more hawkish stance extends support to the GBP/USD pair.

Investors expect the UK central bank to continue raising interest rates to combat stubbornly high inflation. The bets were lifted by the stronger wage growth data released on Tuesday, which could keep inflation elevated. Furthermore, the headline UK CPI - though fell to a three-month low in December - is still running at levels last seen in the early 1980s. This might continue to act as a tailwind for the British Pound and supports prospects for a further appreciating move for the GBP/USD pair.

Next on tap is the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and housing market data. This, along with speeches by influential FOMC members, the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the GBP/USD  pair. Nevertheless, the fundamental backdrop favours bulls, suggesting that any pullback could attract fresh buyers and remain limited.

Technical levels to watch