GBP/USD lacks any firm intraday direction, consolidates in a range above mid-1.2600s

• GBP/USD struggles to gain any meaningful traction amid a mixed fundamental cue.
• An uptick in the US bond yields underpins the USD and cap the upside for the pair.
• Traders also seem reluctant and keenly await the release of the US NFP on Friday.

The GBP/USD pair fails to capitalize on the previous day's modest recovery from the vicinity of the 1.2600 mark, or a near three-week low and oscillates in a narrow band during the Asian session on Thursday. Spot prices currently trade around the 1.2660 region, nearly unchanged for the day.

The British Pound (GBP) is undermined by the fact that business leaders in the UK are more pessimistic about the outlook for the economy and are pushing the Bank of England (BoE) to start cutting rates early this year. In fact, the money market pricing suggests that traders expect around 140 basis points (bps) of rate cuts in 2024. Apart from this, a modest US Dollar (USD) strength is seen acting as a headwind for the GBP/USD pair.

Minutes of the December 12-13 FOMC meeting released on Wednesday did not provide clues about when a series of rate cuts by the Federal Reserve (Fed) might commence. This, in turn, leads to an uptick in the US Treasury bond yields and lends some support to the buck. This, along with a generally weaker tone around the equity markets, benefits the safe-haven Greenback and contributes to keeping a lid on the GBP/USD pair.

The markets, however, have priced in a greater chance of a 25-basis point (bps) Fed rate cut move in March, which should cap a one-week-old rally in the US Treasury bond yields. This might hold back the USD bulls from placing aggressive bets and help limit the downside for the GBP/USD pair. Investors also seem reluctant and prefer to move to the sidelines ahead of the release of the US monthly jobs report (NFP) on Friday.

In the meantime, Thursday's economic docket, featuring the final Services PMIs from the UK and the US, along with the US ADP report on private-sector employment, will be looked upon for short-term trading impetus. Nevertheless, the aforementioned mixed fundamental backdrop warrants caution before positioning for an extension of the recent pullback from a near five-month peak, around the 1.2825-1.2830 area touched last week.

Technical levels to watch