GBP/USD flirts with multi-day top, above 1.2200 ahead of UK GDP/US Core PCE Price Index

• GBP/USD attracts some buying for the second straight day and is supported by a softer USD.
• The divergent Fed-BoE policy outlook might keep a lid on any meaningful appreciating move.
• Traders now look to the final UK GDP for a fresh impetus ahead of the US Core PCE Price Index.

The GBP/USD pair gains some positive traction for the second successive day on Friday and looks to build on the previous day's goodish recovery from the vicinity of its lowest level since March 17. Spot prices trade around the 1.2220 region during the Asian session and draw support from a mildly softer tone surrounding the US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, remains depressed below the YTD peak set earlier this week and is pressured by Thursday's rather unimpressive US macro data. The final estimate published by the US Bureau of Economic Analysis (BEA) showed that the US expanded by a 2.1% annualized pace during the second quarter, in line with market expectations. Furthermore, the Labor Department reported that Initial Jobless Claims rose by 2,000 to 204K during the week ended September 23. This, along with a modest fall in the US Treasury bond yields and a stable performance around the equity markets, undermines the safe-haven buck and acts as a tailwind for the GBP/USD pair.

The US macro data, however, still pointed to a resilient economy and ensured that the Federal Reserve (Fed) would keep interest rates higher for longer. This should help limit the downside for the US bond yields and lend support to the Greenback. Traders might also refrain from placing aggressive directional bets and prefer to wait for the release of the US Core PCE Price Index – the Fed's preferred inflation gauge. The US central bank warned last week that still-sticky inflation in the US was likely to attract at least one more interest rate hike by the end of this year. Hence, the data will influence expectations about the Fed's future rate-hike path, which, in turn, should provide a fresh impetus to the USD and drive the GBP/USD pair.

Heading into the key data risk, traders might take cues from the release of the final UK GDP print, though the immediate market reaction to a positive surprise is more likely to remain limited on the back of the Bank of England's surprise pause in its rate-hiking cycle earlier this month. Moreover, the UK central bank provided little hints of its intends to raise rates any further. This, in turn, warrants some caution for bullish traders and positioning for any further appreciating move for the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom ahead of the 1.2100 round-figure mark.

Technical levels to watch