GBP/USD clings to modest intraday gains above mid-1.2100s, lacks bullish conviction

• GBP/USD attracts some buying on Monday and draws support from a modest USD downtick.
• The uncertainty over the Fed’s rate-hike path and a positive risk tone underpin the greenback.
• Elevated US bond yields limit the USD losses; Bets that the BoE is done raising rates cap the pair.

The GBP/USD pair catches fresh bids on the first day of a new week and sticks to its intraday gains through the early part of the European session. Spot prices currently trade around the 1.2175-1.2180 region, up 0.30% for the day, and for now, seem to have snapped a two-day losing streak to a one-week low touched on Friday.

The US Dollar (USD) kicks off the new week on a softer note in the wake of the uncertainty over the Federal Reserve's (Fed) future rate-hike path and turns out to be a key factor acting as a tailwind for the GBP/USD pair. The recent dovish remarks by several Fed officials suggested that the US central bank will leave interest rates unchanged for the second successive time in November. This, along with a generally positive tone around the equity markets, is seen undermining the safe-haven Greenback.

The latest US consumer inflation figures released last week, however, revived market bets for one more Fed rate hike move by the end of this year. This remains supportive of elevated US Treasury bond yields. Apart from this, the risk that the Israel-Hamas clashes could lead to a wide Middle East conflict helps limit the downside for the USD. Furthermore, expectations that the Bank of England (BoE) will maintain the status quo in November hold back bulls from placing fresh bets around the GBP/USD pair.

The BoE surprisingly paused its rate-hiking cycle in September and provided little hints of its intention to raise rates. This makes it prudent to wait for strong follow-through buying before confirming that the pair's recent corrective pullback from the vicinity of mid-1.2300s, or the monthly peak touched last Wednesday, has run its course. There isn't any relevant UK macro data due on Monday, while the US economic docket features the only release of the Empire State Manufacturing Index.

Investors will also look upon speeches by influential FOMC members for cues about the US central bank's next policy move. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the GBP/USD pair later during the North American session. The focus will then shift to the monthly UK employment details, due on Tuesday, which might infuse some volatility around the GBP cross and provide some impetus to the major.

Technical levels to watch