GBP/USD sticks to gains near multi-week high, above mid-1.2500s amid weaker USD

• GBP/USD gained traction for the third straight day and climbed to over a two-week high.
• The risk-on mood undermined the safe-haven USD and remained supportive of the move.
• Recession fears, Brexit woes might cap the upside ahead of BoE Governor Bailey’s speech.

The GBP/USD pair maintained its bid tone through the first half of the European session and was last seen trading near a two-and-half-week peak, just above mid-1.2500s.

The pair kicked off the new week on a positive note and prolonged its recent recovery move from a two-year low, around the 1.2155 region touched earlier this month. This marked the third successive day of a positive move - also the sixth in the previous seven - and was sponsored by the prevalent US dollar selling bias.

The markets already seem to have fully priced in at least 50 bps Fed rate hike move over the next two meetings. Apart from this, a generally positive tone around the equity markets dragged the safe-haven USD back closer to the monthly low, which, in turn, was seen as a key factor that extended support to the GBP/USD pair.

That said, a modest uptick in the US Treasury bond yields and the worsening global economic outlook should limit deeper losses for the buck. Investors remain worried that aggressive moves by major central banks to curb inflation, the Russia-Ukraine war and the latest COVID-19 outbreak in China could pose challenges to the global economy.

Furthermore, the UK-EU impasse over the Northern Ireland protocol (NIP) might hold back bulls from placing aggressive bets around the GBP/USD pair. In fact, the British government last Tuesday announced a bill that would effectively override parts of a Brexit deal, fueling fears about a trade war in the middle of the cost-of-living crisis.

From a technical perspective, acceptance above the 1.2500 psychological mark could be seen as a fresh trigger for bullish traders and supports prospects for additional gains. The fundamental backdrop, however, makes will be prudent to wait for a strong follow-through buying around the GBP/USD pair before positioning for any further appreciating move.

In the absence of any major market-moving economic releases, traders will take cues from the BoE Governor Andrew Bailey's scheduled speech later during the North American session. On the other hand, the broader market risk sentiment will influence the USD price dynamics and provide some meaningful impetus to the GBP/USD pair.

Technical levels to watch