GBP/USD edges higher to 1.3325 area, lacks follow-through

• GBP/USD gained some positive traction on Thursday amid a softer USD.
• Hawkish Fed expectations could help limit the USD losses and cap gains.
• Brexit woes might also hold back traders from placing fresh bullish bets.

The USD witnessed some selling during the early part of the European session and pushed the GBP/USD pair to a fresh daily high, around the 1.3325 region in the last hour.

The pair attracted fresh buying near the 1.3265 area on Thursday and for now, seems to have snapped three consecutive days of the losing streak. The uptick was exclusively sponsored by some US dollar weakness, though any meaningful recovery still seems elusive.

Concerns about the new variant of the coronavirus eased after the World Health Organization (WHO) official said that some of the early indications is that most Omicron cases are mild. This, in turn, was seen as a key factor that undermined the safe-haven USD.

That said, the prospects for a more aggressive policy tighening by the Fed – to contain stubbornly high inflation – could act as a tailwind for the greenback. In fact, the money markets indicate that the Fed could begin liftoff in June and hike rates thrice in 2022.

The bets increased further after Fed Chair Jerome Powell said the central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of 2022. Powell also said the Fed would consider a faster tapering of its bond purchases at the upcoming meeting.

Apart from this, the UK-EU impasse over the Northern Ireland Protocol and the worsening row over the post-Brexit fishing rights between France and Britain might further hold back the GBP bulls. This warrants some caution before positioning for any further appreciating move.

Hence, it will be prudent to wait for a sustained strength beyond the weekly swing high, around the 1.3370 region, before confirming that the GBP/USD pair has bottomed out. This, in turn, will set the stage for an extension of this week's bounce from sub-1.3200 levels, or YTD low.

There isn't any major market moving economic data due for release from the UK on Thursday, leaving the GBP/USD pair at the mercy of the USD price dynamics. Later during the early North American session, traders might take cues from the usual Weekly Iniital Jobless Claims from the US.

This, along with speeches by influential FOMC members, will influence the USD and provide some impetus to the GBP/USD pair. Apart from this, developments surrounding the coronavirus saga and Brexit-related headlines could produce some trading opportunities around the pair.

Technical levels to watch