GBP/USD holds steady around 1.3500 mark, upside potential seems limited ahead of FOMC

• GBP/USD gained some positive traction on Wednesday and built on the overnight recovery move.
• Rising bets for additional BoE rate hikes extended some support to the British pound and the pair.
• The UK political crisis capped any meaningful upside as investors await the FOMC policy decision.

The GBP/USD pair traded with a positive bias through the first half of the European session and was last seen hovering just a few pips above the 1.3500 psychological mark.

The pair built on the previous day's recovery move from the vicinity of the monthly low, around the 1.3435 region and edged higher for the second successive day on Wednesday. The uptick, however, lacked any fundamental catalyst and could be solely attributed to some repositioning trade ahead of the key central bank event risk.

The Fed is scheduled to announce its policy decision later during the US session and investors will look for clues about the timing of when the US central bank will commence its policy tightening cycle. It is worth recalling that the markets have fully priced in an eventual Fed lift-off in March and expect a total of four hikes in 2022.

Hence, the outcome will play a key role in influencing the near-term US dollar price dynamics and provide a fresh directional impetus to the GBP/USD pair. In the meantime, expectations that the Bank of England will hike interest rates further at the upcoming meeting turned out to be a key factor that extended some support to the British pound.

That said, the recent political developments in the United Kingdom held back traders from placing aggressive bullish bets around the GBP/USD pair and capped gains. In fact, British Prime Minister Borish Johnson has been facing calls to resign amid public anger over a series of alleged lockdown-busting parties in Downing Street.

Even from the technical perspective, bulls, so far, have struggled to lift the GBP/USD pair back above the 100-day SMA support breakpoint, around the 1.3520 region. This further makes it prudent to wait for a strong follow-through buying before confirming that the corrective pullback from the 1.3750 area or a two-month high has run its course.

Technical levels to watch