GBP/USD rallies to fresh weekly high, eyes 1.2500 mark on modest USD weakness

• GBP/USD gains strong positive traction on Wednesday and snaps a three-day losing streak.
• Bets for an imminent Fed rate-hike pause continue to weigh on the USD and lend support.
• The prospects for further tightening by the BoE boost the GBP and contribute to the move.

The GBP/USD pair catches aggressive bids following an early dip to sub-1.2400 levels and builds on its intraday positive move through the early North American session on Wednesday. Spot prices jump to 1.2470 region, or a fresh weekly high in the last hour, snapping a three-day losing streak and stalling the recent pullback from a nearly three-week high touched last Friday.

The US Dollar (USD) comes under some renewed selling pressure as traders remain uncertain over the Federal Reserve's (Fed) rate-hike path and turns out to be a key factor acting as a tailwind for the GBP/USD pair. Last week's dovish rhetoric by several Fed officials lifted bets for an imminent pause in the US central bank's policy tightening cycle.  That said, the recent inflation and labor market data from the US kept alive hopes for a 25 bps lift-off at the June  FOMC meeting. This, in turn, leads to a modest recovery in the US Treasury bond yields, albeit fails to impress the USD bulls.

The British Pound, on the other hand, continues to be underpinned by expectations that the Bank of England (BoE) will be far more aggressive in policy tightening to contain stubbornly high inflation. Investors now expect the BoE to raise interest rates again from 4.5% to 4.75% on June 22  and see a roughly 60% chance that rate will peak at 5.5% later this year. The bets were lifted by the official data, which showed that the headline UK CPI fell less than expected in April and a closely watched measure of core price surged to a 31-year high. This is seen as another factor boosting the GBP/USD pair.

Meanwhile, investors now seem to have digested Wednesday's disappointing release of Chinese macro data, which showed that the trade surplus sank to a 13-month low in May and fueled worries about a deeper global economic downturn. This is evident from signs of stability in the equity markets, which could dent the Greenback's safe-haven status and supports prospects for a further intraday appreciating move for the GBP/USD pair. The positive outlook is reinforced by bullish technical indicators on the daily chart, which are still far from being in the overbought territory.

Technical levels to watch