GBP/USD struggles to find acceptance above 1.2600, pares intraday gains to multi-week peak

• GBP/USD climbed to a three-week high on Thursday amid subdued USD price action.
• Recession fears, the risk-off mood should limit deeper losses for the safe-haven buck.
• Doubts about further BoE rate hikes, Brexit woes might cap gains for the British pound.

The GBP/USD pair reversed an early European session dip to mid-1.2500s and jumped back closer to a three-week high touched earlier this Thursday. The pair was last seen trading around the 1.2585-1.2590 region, up less than 0.15% for the day.

The US dollar struggled to capitalize on the overnight bounce from a nearly one-month low, which, in turn,  pushed the GBP/USD pair higher for the second successive day on Thursday. Minutes from the May 3-4 FOMC meeting showed that most participants believed a 50 bps rate increase would likely be appropriate in June and July. The expected move, however, is already priced in the markets and the lack of any major surprises reaffirmed the idea that the Fed could pause the rate hike cycle later this year. This, along with a softer tone surrounding the US Treasury bond yields, acted as a headwind for the buck.

That said, concerns about softening global economic growth and the prevalent risk-off mood might continue to benefit the greenback's status as the reserve currency. Investors remain worried that a more aggressive move by major central banks to constrain inflation and the Russia-Ukraine war could pose challenges to the global economy. Apart from this, diminishing odds for further rate hikes by the Bank of England and Brexit woes should hold back traders from placing aggressive bullish bets around the British pound. This warrants caution before positioning for any further appreciating move for the GBP/USD pair.

There isn't any major market-moving economic data due for release from the UK, leaving the pair at the mercy of the USD price dynamics. Later during the early North American session, traders will take cues from the US economic docket - featuring the release of Prelim Q1 GDP, the usual Weekly Initial Jobless Claims and Pending Home Sales. Apart from this, the broader market risk sentiment will drive the USD demand and produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch