GBP/USD bounces off multi-week low, keeps the red below 1.2500 amid stronger USD

• Sustained USD buying interest dragged GBP/USD to a near three-week low on Tuesday.
• A generally weaker risk tone, elevated US Treasury bond yields underpinned the buck.
• The downside seems limited as traders wait for the crucial US CPI report later this week.

The GBP/USD pair managed to recover a few pips from a near three-week low touched in the last hour and was last seen trading around the 1.2470 region, still down nearly 0.50% for the day.

Despite the fact that the UK Prime Minister Boris Johnson survived a vote of no confidence, the British pound, so far, has struggled to attract buyers and remains at the mercy of the US dollar. A generally softer risk tone, along with the recent strong rally in the US Treasury bond yields, continued acting as a tailwind for the buck and prompted fresh selling around the GBP/USD pair on Tuesday.

The market sentiment remains fragile amid concerns that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. Investors also seem worried that the global supply chain disruption caused by the Russia-Ukraine war would continue to push consumer prices higher and force the Fed to tighten its monetary policy at a faster pace.

This, in turn, lifted the yield on the benchmark 10-year US government bond beyond the 3.0% threshold for the first time in nearly four weeks and offered additional support to the greenback. Hence, the market focus will remain glued to the US CPI report on Friday, which might determine the Fed's policy tightening path and will play a key role in driving the near-term USD price dynamics.

In the meantime, the broader market risk sentiment and the US bond yields might influence the USD amid absent top-tier economic releases. This, in turn, should allow traders to grab short-term opportunities around the GBP/USD pair.

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