GBP/USD jumps to fresh daily high, back above mid-1.3500s ahead of US CPI

• GBP/USD caught fresh bids on Thursday and was supported by modest USD weakness.
• A positive risk tone turned out to be a key factor that undermined the safe-haven USD.
• Brexit jitters, hawkish Fed expectations should cap gains ahead of the key US CPI print.

The GBP/USD pair regained positive traction during the first half of the European session and shot to a fresh daily high, around the 1.3560-1.3565 region in the last hour.

Following the previous day's turnaround from the weekly low, the GBP/USD pair caught fresh bids on Thursday and was supported by modest US dollar weakness. A generally positive tone around the equity markets was seen as a key factor that undermined the greenback's relative safe-haven status. That said, elevated US Treasury bond yields and hawkish Fed expectations should limit any meaningful USD losses, warranting caution for bullish traders.

Investors seem convinced that the Fed will adopt a more aggressive policy response to combat high inflation and have been pricing in a 50 bps rate hike in March. This, in turn, had pushed the US bond yields to multi-year highs earlier this week. Hence, Thursday release of the US CPI report would be looked upon for fresh clues about the pace of the Fed's policy tightening cycle, which will play a key role in influencing the USD price dynamics.

In the meantime, some cross-driven strength stemming from a sharp spike in the GBP/JPY cross remained supportive of the move up. It, however, remains to be seen if bulls can retain their dominant position or the momentum meets with a fresh supply at higher levels amid renewed tensions over the Northern Ireland Protocol of the Brexit agreement. This makes it prudent to wait for some follow-through buying before positioning for any further gains.

Technical levels to watch