GBP/USD trades with a mild negative bias, holds above a multi-week low set on Tuesday

• GBP/USD remains on the defensive for the third successive day, albeit lacks follow-through.
• The emergence of some USD dip-buying turns out to be a key factor weighing on the major.
• The downside seems limited as traders seem reluctant ahead of the BoE meeting on Thursday.

The GBP/USD pair struggles to capitalize on its modest Asian session uptick to levels just above the 1.2800 mark and turns lower for the third successive day on Wednesday. Spot prices currently trade around the 1.2770-1.2765 region, just a few pips above a nearly four-week low touched on Tuesday.

The US Dollar (USD) reverses an intraday dip that followed the Fitch downgrade of the US government's credit rating to AA+ from AAA and continues to draw support from bets for further policy tightening by the Federal Reserve (Fed). The British Pound (GBP), on the other hand, is weighed down by diminishing odds for more aggressive rate hikes by the Bank of England (BoE), which further contribute to capping the upside for the GBP/USD pair.

It is worth recalling that Fed Chair Jerome Powell said last week that the economy still needs to slow and the labour market to weaken for inflation to credibly return to the 2% target. Moreover, the incoming US macro data points to an extremely resilient economy and keeps the door open for one more 25 bps Fed rate hike in September or November. This remains supportive of elevated US Treasury bond yields and underpins the Greenback.

Apart from this, a generally weaker risk tone - as depicted by a downfall in the US equity futures - further benefits the Greenback's relative safe-haven status. The downside for the GBP/USD pair, however, remains cushioned, at least for now, as the markets have been pricing in two more BoE rate hikes by the end of this year as price pressures persist. Hence, the focus will remain glued to the crucial BoE monetary policy meeting on Thursday.

Heading into the key central bank event risk, traders will take cues from the US ADP report on private-sector employment, due for release later during the early North American session this Wednesday. This, along with the US bond yields and the broader risk sentiment, might influence the USD and provide some impetus to the GBP/USD pair. The aforementioned mixed fundamental backdrop, meanwhile, warrants caution before placing directional bets.

Technical levels to watch