GBP/USD sticks to modest intraday gains, above mid-1.3000s amid weaker USD

• A combination of factors assisted GBP/USD to regain positive traction on Wednesday.
• A generally positive tone around the equity markets undermined the safe-haven USD.
• BoE rate hike bets underpinned the British pound and further extended some support.
• Bulls seemed reluctant to place fresh bets ahead of the FOMC and the BoE decisions.

The GBP/USD pair traded with a mild positive bias through the early European session and was last seen hovering near the daily top, just a few pips above mid-1.3000s.

Following the overnight pullback from the vicinity of the 1.3100 mark, the GBP/USD pair attracted some buying for the second successive day on Wednesday and was supported by a combination of factors. A generally positive risk tone undermined the safe-haven US dollar and acted as a tailwind for spot prices. Apart from this, expectations that the Bank of England will hike interest rate for the third time on Thursday benefitted the British pound and further extended support to the major.

Despite the lack of progress in the Russia-Ukraine ceasefire talks, investors remain optimistic about a possible diplomatic solution to end the war. This, along with reports that China will keep the stock market stable and support overseas share listing, overshadowed worries about the resurgence of COVID-19 cases in China and boosted investors' confidence. This was evident from the risk-on impulse in the financial markets, which, in turn, drove flows away from traditional safe-haven assets.

That said, elevated US Treasury bond yields, bolstered by hawkish Fed expectations, should limit the USD losses and cap the GBP/USD pair. The markets seem convinced that the recent geopolitical developments might do little to hold back the US central bank from hiking interest rates to combat high inflation. The prospects for an imminent start of the policy tightening cycle by the Fed pushed the yield on the benchmark 10-year government bond to the highest level since June 2019.

Hence, it remains to be seen if bulls are able to capitalize on the uptick or the GBP/USD pair meets with a fresh supply at higher levels. Meanwhile, the pair's inability to gain any meaningful traction suggests that the BoE rate hike move is fully priced in the markets, suggesting that the path of least resistance is to the downside. That said, it will be prudent to wait for a convincing break below the key 1.3000 psychological mark before positioning for any further near-term depreciating move.

Technical levels to watch