GBP/USD bounces off daily low, holds steady around mid-1.2500s ahead of US ISM PMI

• GBP/USD reverses modest intraday losses amid the emergence of some USD selling.
• Rising US bond yields, looming recession risks underpin the USD and cap the upside.
• Traders now look to the US ISM PMI for some impetus ahead of the FOMC meeting.

The GBP/USD pair attracts some buying in the vicinity of the 1.2500 psychological mark on Monday and turns neutral during the early part of the North American session. The pair is currently placed around the 1.2550 region and remains well within the striking distance of its highest level since June 2022 touched on Friday.

The US Dollar (USD) surrenders a major part of its modest intraday gains amid the uncertainty over the Federal Reserve's (Fed) rate-hike path and turns out to be a key factor lending some support to the GBP/USD pair. In fact, the markets have fully priced in another 25 bps lift-off at the end of a two-day FOMC monetary policy meeting on Wednesday, which remains supportive of a modest uptick in the US Treasury bond yields and acts as a tailwind for the USD.

Investors, however, seem convinced that the US central bank will then hold rates steady for the rest of the year, which, in turn, holds back the USD bulls from placing aggressive bets. Apart from this, firming expectations that the Bank of England (BoE) will also hike interest rates by 25 bps in May assists the GBP/USD pair to attract some dip-buying at lower levels, though the upside seems limited ahead of the highly-anticipated FOMC meeting, starting on Tuesday.

Furthermore, looming recession risks might continue to benefit the Greenback's relative safe-haven status and contribute to capping gains for the GBP/USD pair, at least for the time being. From a technical perspective, Friday's sustained breakthrough and acceptance above the 1.2500 psychological mark, along with the emergence of some dip-buying on Monday, favours bulls and suggests that the path of least resistance for spot prices is to the upside.

Next on tap is the release of the US ISM Manufacturing PMI. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some meaningful impetus to the GBP/USD pair. The immediate market reaction, however, is more likely to remain limited, warranting some caution before placing aggressive directional bets.

Technical levels to watch