GBP/USD sticks to modest recovery gains above mid-1.1900s, upside potential seems limited

• GBP/USD attracted some buying near the 1.1900 mark on Wednesday, though lacked follow-through.
• A positive risk tone prompted some profit-taking around the safe-haven USD and extended support.
• The UK political jitters acted as a headwind for sterling and capped gains ahead of the FOMC minutes.

The GBP/USD pair reversed an early European session dip to the 1.1900 neighbourhood and shot to a fresh daily high in the last hour. The pair has now recovered a part of the overnight slump to its lowest level since March 2020 and was last seen trading near the 1.1970-1.1965 area, up less than 0.10% for the day.

A goodish recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - dragged the safe-haven US dollar away from a fresh two-decade high touched on Tuesday. This, in turn, was seen as a key factor that prompted some intraday short-covering around the GBP/USD pair, though any meaningful recovery still seems elusive.

Growing worries about a possible global recession should keep a lid on any optimistic move in the markets. Apart from this, the prospects for more aggressive Fed rate hikes should act as a tailwind for the greenback. Hence, the market focus will remain glued to the FOMC monetary policy meeting minutes, due for release later during the US session on Wednesday.

In the meantime, the UK political jitters should hold back traders from placing bullish bets around the British pound. In the latest developments, the UK Conservative Party, Bim Afolami, Chancellor Sunak and UK Health Minister Javid announced their resignations. British Prime Minister Boris Johnson, however, reportedly has no plans to step down.

This comes on the back of expectations that the Bank of England would adopt a gradual approach towards raising interest rates amid the worsening economic outlook, which might cap sterling. Hence, it will be prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has formed a near-term base near the 1.1900 round-figure mark.

Technical levels to watch