GBP/USD remains depressed below mid-1.2300s as USD recovers further from multi-week low

• GBP/USD moves further away from a multi-week top and is pressured by modest USD strength.
• The BoE’s bleak economic outlook undermines the GBP and contributes to the mildly offered tone.
• Investors now look to speeches by influential FOMC members before placing fresh directional bets.

The GBP/USD pair trades with a negative bias for the second straight day on Tuesday and retreats further from its highest level since mid-September, around the 1.2425-1.2430 region touched the previous day. Spot prices drop to a two-day low, around the 1.2335-1.2330 zone during the Asian session, down less than 0.10% for the day, though lack follow-through selling.

The US Dollar (USD) is seen building on the overnight recovery move from a near eight-week low and turning out to be a key factor exerting some pressure on the GBP/USD pair. Despite expectations that the Federal Reserve (Fed) is done raising interest rates, less dovish remarks by FOMC members led to a goodish rebound in the US Treasury bond yields on Monday. Apart from this, a slight deterioration in the global risk sentiment – as depicted by a softer tone surrounding the equity markets – underpins the safe-haven Greenback.

The British Pound (GBP), on the other hand, is weighed down by the Bank of England's (BoE) bleak outlook, saying that the UK economy risks falling into recession next year. This, along with the previous day's failure near a technically significant 200-day Simple Moving Average (SMA), prompts some selling around the GBP/USD pair and contributes to the mildly offered tone. The downside, however, seems limited as traders await fresh cues about the Fed's future rate hike path before positioning for the next leg of a directional move.

Hence, the focus will remain glued to speeches by influential FOMC members, including Fed Chair Jerome Powell's appearance on Wednesday and Thursday. In the meantime, a fresh leg down in the US Treasury bond yields might keep a lid on any further gains for the buck and help limit the downside for the GBP/USD pair. In the absence of any relevant market-moving economic data, either from the UK or the US, the fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that spot prices have topped out.

Technical levels to watch