GBP/USD surges past 1.2500, recovers further from multi-month low amid notable USD supply

• GBP/USD gains some positive traction on Monday and moves away from a three-month low.
• A modest USD pullback from a multi-month top is seen as a key factor lending some support.
• Traders now look to this week's key macro data from the UK and the US for a fresh impetus.

The GBP/USD pair attracts some dip-buying after filling the weekly bearish gap during the Asian session on Monday and climbs further beyond the 1.2500 psychological mark, hitting a fresh daily top in the last hour. Spot prices currently trade around the 1.2520-1.2525 area, up nearly 0.50% for the day, and for now, seem to have snapped a four-day losing streak, though any meaningful recovery from a three-month low touched last Thursday still seems elusive.

A strong pickup in demand for the Japanese Yen (JPY), bolstered by Bank of Japan (BoJ) Governor Kazuo Ueda's hawkish comments over the weekend, exerts some pressure on the US Dollar (USD). Apart from this, a positive tone around the equity markets drags the safe-haven buck away from its highest level since March set last week and turns out to be another factor lending some support to the GBP/USD pair.

Data released over the weekend showed that China’s consumer price inflation rose back into positive territory in August, while the Producer Price Index shrank at a slower pace than seen throughout the year. This raises hopes that the the world's second-largest economy was stabilizing after a substantial drop this year, which, along with expectations for additional stimulus from China boost investors' appetite.

That said, other indicators, showing that China's manufacturing sector remained in contraction and growth in the services sector decelerated in August, painted a mixed economic picture. This might keep a lid on any optimism in the markets. Apart from this, growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance should help limit the USD downside and keep a lid on the GBP/USD pair.

Market participants seem convinced that the US central bank will keep interest rates higher for longer and have been pricing in the possibility of one more 25 bps lift-off by the end of this year. The bets were lifted by The Wall Street Journal report that some officials still prefer to err on the side of raising rates too much. This remains supportive of rising US Treasury bond yields and favours the USD bulls.

The Bank of England (BoE) Governor Andrew Bailey, on the other hand, warned last Wednesday that borrowing costs might still have further to rise because of stubbornly high inflation. Bailey, however, told lawmakers that the central bank is much nearer to ending its run of rate increases. This could further contribute to capping any meaningful appreciting move for the GBP/USD pair, at least for the time being.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of this week's important macro releases from the UK and the US. The UK jobs report is due on Tuesday, which will be followed by the monthly UK GDP report and the latest US consumer inflation figures on Wednesday. Apart from this, traders will confront the release of the US Producer Price Index (PPI) on Thursday.

Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has formed a near-term bottom and positioning for any further gains. On the flip side, a sustained break below the very important 200-day Simple Moving Average (SMA), around the 1.2425 region, is needed to confirm the negative outlook.

Technical levels to watch