GBP/USD trades with modest losses, holds above mid-1.2300s ahead of US PCE Price Index

• GBP/USD pulls back from over a two-month high amid a modest pickup in the USD demand.
• The better-than-expected UK GDP reaffirms BoE rate hike bets and helps limit the downside.
• Traders also seem reluctant and prefer to wait for the release of the US Core PCE Price Index.

The GBP/USD pair comes under some selling pressure after touching over a two-month high, around the 1.2420-1.2425 area on Friday and maintains its offered tone through the first half of the European session. The pair is currently placed near the lower end of its daily trading range, around the 1.2370-1.2365 zone, down nearly 0.15% for the day.

A goodish pickup in the US Treasury bond yields helps revive the US Dollar (USD) demand on the last day of the week, which turns out to be a key factor dragging the GBP/USD pair lower. Hopes that a widespread banking crisis might have been averted fueled speculations that the US central bank might move back to its inflation-fighting interest rate hikes. Adding to this, three Fed officials on Thursday backed the case for more rate increases to lower high levels of inflation. This, in turn, acts as a tailwind for the US bond yields and lends some support to the Greenback.

Hence, the market focus will remain glued to the release of the US Core PCE Price Index, the Fed's preferred inflation gauge, due later during the early North American session. Heading into the key data risk, traders seem inclined to lighten their bullish bets around the GBP/USD pair, especially after this week's rally of over 200 pips. That said, the slightly better-than-expected UK GDP print reaffirms expectations for additional rate hikes by the Bank of England (BoE), which, in turn, holds back bearish traders from placing aggressive bets around the major, at least for now.

Apart from this, the prevalent risk-on mood - as depicted by an extension of the recent rally in the equity markets - keeps a lid on any meaningful gains for the safe-haven buck and contributes to limiting the downside for the GBP/USD pair. This makes it prudent to wait for strong follow-through selling before confirming that the upward trajectory witnessed since the first half of the current month has run out of steam and positioning for any meaningful depreciating move. Nevertheless, spot prices remain on track to end in positive territory for the sixth successive week.

Technical levels to watch