GBP/USD flits with daily low, around 1.3600 mark amid reviving USD demand

• The UK political turmoil failed to assist GBP/USD to capitalize on its modest intraday gains.
• Elevated US bond reived the USD demand and prompted intraday selling around the pair.
• Rising BoE rate hike bets acted as a tailwind for sterling and helped limit any further slide.

The GBP/USD pair surrendered its modest intraday gains and was last seen hovering near the daily low, around the 1.3600 mark heading into the North American session.

Growing demands for UK Prime Minister Boris Johnson's resignation over a series of lockdown parties in Downing Street turned out to be a key factor that acted as a headwind for the British pound. The GBP/USD pair met with a fresh supply near the 1.3635 region on Thursday and was further pressured by the emergence of some US dollar dip-buying.

Firming expectations that the Fed would begin raising interest rates in March to contain stubbornly high inflation remained supportive of the elevated US Treasury bond yields. This, in turn, helped revive the USD demand. That said, signs of stability in the equity markets kept a lid on any meaningful upside for the safe-haven greenback.

Apart from this, rising bets for additional rate hikes by the Bank of England could help limit any deeper losses for the GBP/USD pair. The market bets were reaffirmed by Wednesday's release of the US CPI print. This, along with the announcement that COVID-19 restrictions in the UK would be lifted next week, should lend some support to sterling.

The mixed fundamental backdrop warrants some caution before placing aggressive directional bets ahead of the crucial FOMC monetary policy meeting on January 25-26. Investors will look for clearer signals about the timing when the Fed will commence the rate hike cycle. This will influence the USD and provide a fresh impetus to the GBP/USD pair.

In the meantime, traders on Thursday will take cues from the US economic docket, featuring the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data. This, along with the US bond yields and the broader market risk sentiment, will drive the USD demand and produce some trading opportunities around the GBP/USD pair.

Technical levels to watch