GBP/USD climbs to fresh daily high, around 1.2175-80 area amid modest USD weakness

• GBP/USD gains some positive traction amid a modest USD pullback from the weekly top.
• A combination of factors should limit deeper USD losses and cap the upside for the pair.
• Hawkish Fed expectations and a softer risk tone should act as a tailwind for the greenback.

The GBP/USD pair shows some resilience below a technically significant 200-day SMA and attracts some buyers near the 1.2100 mark on Wednesday. The intraday uptick pushes spot prices to a fresh daily high, around the 1.2175-1.2180 region during the mid-European session, though any meaningful positive move seems elusive.

The US Dollar struggles to find acceptance above the very important 200-day SMA and for now, seems to have stalled this week's goodish recovery move from over a five-month low.  This, in turn, is seen as a key factor acting as a tailwind for the GBP/USD pair. Meanwhile, the intraday USD pullback from a fresh weekly high lack any obvious fundamental catalyst and is likely to remain limited amid hawkish Fed expectations.

The recent upbeat US macro data suggests that the economy remains resilient despite rising borrowing costs and fuel speculations that the Fed may lift rates more than projected. This acts as a tailwind for the US Treasury bond yields and should lend support to the buck. Apart from this, the cautious mood - amid growing recession fears - supports prospects for the emergence of some buying around the safe-haven USD.

The market sentiment remains fragile amid worries about a deeper global economic downturn. This is evident from a softer tone around the equity markets, which tends to drive some haven flows towards the greenback. In the absence of any major market-moving economic releases, the fundamental backdrop warrants some caution before placing aggressive bullish bets around the GBP/USD pair and positioning for any further gains.

Technical levels to watch