GBP/USD refreshes daily high amid post-ADP USD downtick, focus remains on FOMC

• GBP/USD staged a goodish intraday bounce from the weekly low touched earlier this Wednesday.
• A positive risk tone and dismal ADP report weighed on the safe-haven USD and extended support.
• The upside potential seems limited as the focus remains glued to the crucial FOMC policy decision.

The USD edged lower in reaction to the dismal US ADP report and pushed the GBP/USD pair to a fresh daily high, around the 1.2535 region during the early North American session.

The pair quickly reversed an intraday dip to the 1.2465 area and has now rallied nearly 70 pips from the weekly low touched earlier this Wednesday amid modest US dollar weakness. Given that the Fed's anticipated move to hike interest rates is already priced in, indications of a positive opening in the  US equity markets undermined the safe-haven greenback.

The USD added to its intraday losses after data released by the Automatic Data Processing (ADP) showed that the US private-sector employers added 247K new jobs in April. This missed consensus estimate pointing to the 395K increase, though was largely offset by an upward revision of the previous month's reading to 479K from the 455K reported earlier.

Apart from this, the prospects for a more aggressive policy tightening should act as a tailwind for the buck and keep a lid on any further gains for the GBP/USD pair. Investors seem convinced that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation. Hence, the focus will remain on the outcome of a two-day FOMC meeting.

The Fed is widely expected to hike the benchmark interest rates by 50 bps and lay plans to start shrinking its massive, a near $9 trillion balance sheet. Investors, however, will scrutinize Fed Chair Jerome Powell's comments to see if the US central bank is ready to continue with its policy tightening and hike interest rates further even if the economy weakens.

This will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the GBP/USD pair ahead of the Bank of England policy meeting on Thursday. The combination of key central bank event risks warrants some caution for aggressive traders and before positioning for a firm near-term direction.

Technical levels to watch