GBP/USD struggles to attract follow-through buying, remains below mid-1.2100s

• GBP/USD oscillates in a narrow trading band during the Asian session on Thursday.
• Hawkish Fed expectations continue to underpin the USD and cap gains for the pair.
• The BoE’s surprise on-hold decision warrants caution for aggressive bullish traders.

The GBP/USD pair struggles to capitalize on the previous day's goodish intraday recovery from the 1.2035 area, or its lowest level since March 16 and oscillates in a narrow trading band during the Asian session on Thursday. Spot prices currently trade below mid-1.2100s and remain at the mercy of the US Dollar (USD) price dynamics.

The US Dollar (USD) remains well within the striking distance of a nearly 11-month high touched on Tuesday in the wake of the Federal Reserve's (Fed) hawkish view and turns out to be a key factor acting as a headwind for the GBP/USD pair. The USD did witness some profit-taking on Wednesday following the release of the weaker-than-anticipated ADP report, showing that private-sector employers added only 89K jobs in September. This marked a sizeable decline from the previous month's upwardly revised reading of 180K.

Adding to this, the US ISM Services PMI declined from 54.5 to 53.6 in September and forced investors to trim their bets for one more Fed rate hike move by the end of this year. This led to a modest pullback in the US Treasury bond yields, which, along with a rally in the US equity markets, exerted some downward pressure on the safe-haven Greenback. Market participants, however, remain convinced that the Fed will stick to its hawkish stance and keep rates higher for longer. This, in turn, helps limit any meaningful USD fall.

The British Pound (GBP), on the other hand, continues to be undermined by the Bank of England's (BoE) surprise decision to break a long run of rate increases in September. Furthermore, the current market pricing indicates a 70% chance that the central bank will again leave interest rates unchanged at its next meeting in November. This further contributes to capping the upside for the GBP/USD pair and warrants some caution for aggressive bullish traders or before positioning for any meaningful recovery ahead of the US jobs data on Friday.

The closely-watched US NFP report will play a key role in influencing market expectations about the Fed's future rate-hike path. This, in turn, will drive the USD demand and provide a fresh directional impetus to the GBP/USD pair. In the meantime, traders on Thursday will take cues from the release of the UK Construction PMI for some impetus. The US economic docket, meanwhile, features the release of the usual Weekly Initial Jobless Claims data, which might contribute to producing short-term opportunities around the GBP/USD pair.

Technical levels to watch