GBP/USD lacks any firm intraday direction, stuck in a range above mid-1.2700s ahead of BoE

• GBP/USD oscillates in a narrow trading band ahead of the key BoE decision on Thursday.
• Rising bets for a jumbo 50 bps lift-off continue to underpin the GBP and act as a tailwind.
• The USD languishes near the monthly low and further lends some support to the major.

The GBP/USD pair struggles to capitalize on the previous day's goodish rebound from sub-1.2700 levels, or the weekly low and oscillates in a narrow trading band through the Asian session on Thursday. The pair currently trades around the 1.2765-1.2770 area, nearly unchanged for the day, as traders now look to the highly-anticipated Bank of England (BoE) policy decision before placing fresh directional bets.

Investors on Wednesday ramped up bets for a more aggressive policy tightening by the BoE following the release of hotter-than-expected UK consumer inflation data, which defied expectations and held steady at the 8.7% YoY rate in May. Moreover, core CPI - excluding volatile energy, food, alcohol and tobacco prices - accelerated from 6.8% in April to 7.1% or the highest rate since March 1992. This comes on the back of the upbeat UK jobs data released last week, which showed near-record wage growth and forced investors to increase their forecast for peak interest rates to 6.01% by February 2024.

The expectations pushed the yield on the two-year British government bonds, which are more sensitive to rate-hike expectations, to its highest since 2008 on Wednesday. This, along with subdued US Dollar (USD) price action, continues to act as a tailwind for the GBP/USD pair heading into the key central bank event risk. In fact, the USD Index, which tracks the Greenback against a basket of currencies, languishes near the monthly low in the wake of Federal Reserve (Fed) chair Jerome Powell's less hawkish remarks overnight, saying that it may make sense to raise rates at a more moderate pace.

Testifying before the House Financial Services Committee on Wednesday, Powell added that the fight against inflation still has a long way to go and despite the latest pause, officials agreed borrowing costs would likely need to move higher. This, in turn, holds back traders from placing aggressive bearish bets around the USD and capping the GBP/USD pair. Nevertheless, the fundamental backdrop suggests that the recent pullback from a 14-month peak has run its course and that the path of least resistance for spot prices is to the upside.

Technical levels to watch