GBP/USD eases from multi-month top amid modest USD bounce, downside seems limited

• GBP/USD touches its highest level since June 2022, albeit lacks any follow-through.
• Looming recession risks lend some support to the Greenback and act as a headwind.
• Declining US bond yields and the Fed’s less hawkish outlook to cap gains for the USD.

The GBP/USD pair struggles to capitalize on its modest intraday uptick and retreats from the vicinity of the 1.2600 mark, or its highest level since June 2022 touched this Thursday. Spot prices drop back closer to the daily low during the early European session and currently trade just above mid-1.2500s, nearly unchanged for the day.

The US Dollar (USD) recovers a part of its intraday losses to over a one-week low and turns out to be a key factor that acts as a headwind for the GBP/USD pair. Looming recession risks continue to weigh on investors' sentiment, which is evident from the prevalent cautious mood around the equity markets and lends some support to the safe-haven buck. That said, any meaningful USD recovery seems elusive amid a further decline in the US Treasury bond yields and the Federal Reserve's (Fed) less hawkish outlook.

It is worth recalling that the US central bank, as was widely anticipated, raised interest rates by 25 bps and opened the door for a possible pause in June at the end of a two-day policy meeting on Wednesday. In the post-meeting presser, Powell signalled that the Fed was close to hitting the terminal rate of the current hiking cycle. This, along with concerns over the US debt ceiling and renewed fears of a full-blown banking crisis, continues to drag the US bond yields lower and should keep a lid on the attempted USD bounce.

Apart from this, rising bets for another 25 bps rate hike by the Bank of England (BoE) might continue to underpin the British Pound and contribute to limiting the downside for the GBP/USD pair. Traders, however, might refrain from placing aggressive directional bets and prefer to move to the sidelines ahead of the closely-watched US monthly employment details, popularly known as the NFP report on Friday. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the pair.

In the meantime, traders on Thursday will take cues from the Weekly Initial Jobless Claims data from the US, due later during the early North American session. Apart from this, the broader risk sentiment and the US bond yields will drive the USD demand. This, along with the post-European Central Bank (ECB) decision volatility in the markets, should allow traders to grab short-term opportunities around the GBP/USD pair.