GBP/USD slides below mid-1.2100s, downside seems cushioned amid subdued USD demand

• GBP/USD meets with a fresh supply on Wednesday, though the downside seems cushioned.
• A bleak outlook for the UK economy undermines the GBP and acts as a headwind for the pair.
• A combination of factors keeps the USD bulls on the defensive and could lend some support.

The GBP/USD pair struggles to capitalize on its modest intraday uptick and attracts some sellers near the 1.2175-1.2180 region on Wednesday. Spot prices slide back below mid-1.2100s during the first half of the European session, though remain well within the previous day's broader trading range.

A bleak outlook for the UK economy has been fueling speculations that the Bank of England (BoE) is nearing the end of the current rate-hiking cycle and undermines the British Pound. This, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair, though subdued US Dollar price action helps limit the downside, at least for the time being.

The USD is weighed down by growing acceptance that the Fed will soften its hawkish stance, bolstered by last week's softer US macro data. In fact, the US NFP report showed a slowdown in the US wage growth in December and pointed to signs of easing inflationary pressures. Furthermore, business activity in the US services sector hit the worst level since 2009 during December.

The data suggested that the effect of the Fed's large rate hikes in 2022 is already being felt in the economy and lifted bets for a less aggressive policy tightening going forward. This, in turn, keeps the US Treasury bond yields depressed near a multi-week low, which, along with a generally positive tone around the equity markets, weighs on the safe-haven buck.

Furthermore, traders also seem reluctant to place aggressive bets and might prefer to wait for the release of the US consumer inflation figures on Thursday. Apart from this, the UK macro data dump on Friday, including the monthly GDP print, will be looked upon for some meaningful impetus. This further warrants some caution before positioning for a firm direction.

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