GBP/USD sticks to gains amid modest USD weakness, lacks follow-through beyond mid-1.3100s

• GBP/USD gained traction for the second straight day and climbed to over a one-week high.
• Retreating US bond yields triggered the USD corrective pullback and extended some support.
• Investors now await the ECB decision and the US macro data for short-term trading impetus.

The GBP/USD pair held on to its intraday gains through the first half of the European session and was last seen trading just below the mid-1.3100s, or a one-and-half-week low.

The pair built on the previous day's solid recovery move from the 1.2975-1.2970 region, or its lowest level since November 2021 and gained traction for the second straight day on Thursday. The ongoing US dollar corrective pullback from the two-year high touched overnight was seen as a key factor that acted as a headwind for the GBP/USD pair.

The fact that the US consumer inflation figures released on Tuesday were not as bad as feared forced the US Treasury bond yields to pause the recent rally to the multi-year peak. This, along with a generally positive tone around the equity markets, overshadowed expectations for a faster policy tightening by the Fed and underpinned the buck.

The British pound was further supported by Wednesday's hotter-than-expected UK CPI report. Given the tight labor market in the UK, the data seem to have strengthened the case for more interest rate hikes by the Bank of England. This was seen as another factor that contributed to the bid tone surrounding the GBP/USD pair, though the upside remains capped.

Investors seem reluctant to place aggressive bets and preferred to wait on the sidelines ahead of the highly-anticipated European Central Bank meeting. Apart from this, traders will take cues from the US economic docket - featuring the release of monthly Retail Sales figures, the usual Weekly Initial Jobless Claims and the Prelim Michigan Consumer Sentiment Index.

Technical levels to watch