GBP/USD holds steady around mid-1.2100s ahead of expected jumbo BoE rate hike

• GBP/USD gains some positive traction on Thursday amid modest USD weakness.
• The upside remains limited as traders seem reluctant ahead of the BoE decision.
• Hawkish Fed expectations act as a tailwind for the USD and contribute to cap gains.

The GBP/USD pair edges higher on Thursday and moves further away from the weekly low, around the 1.2100 round-figure mark touched the previous day. Spot prices, however, retreat a few pips from the daily high and seem to stabilize around mid-1.2100s during the early part of the European session.

A softer tone surrounding the US Treasury bond yields exerts some downward pressure on the US dollar, which, in turn, is offering support to the GBP/USD pair. Apart from this, expectations that the Bank of England would raise interest rates by 50 bps - the most since 1995 - lend additional support to the British pound. The uptick, however, lacked bullish conviction as investors prefer to wait on the sidelines ahead of the key central bank event risk.

The UK central bank is scheduled to announce its policy decision later this Thursday and lift the benchmark to 1.75%, or the highest level since late 2008. Market participants, however, remain divided over future interest rate hikes amid growing worries about a global economic downturn. Hence, the focus would be on the post-meeting press conference, where comments by the BoE Governor Andrew Bailey could trigger a fresh bout of volatility around the GBP crosses.

In the meantime, more hawkish comments by several Federal Reserve officials this week, hinting that more interest rates are coming in the near term, should act as a tailwind for the USD. This might further contribute to keeping a lid on any meaningful upside for the GBP/USD pair, warranting some caution for bullish traders. Hence, it would be prudent to wait for a sustained strength beyond the 1.2200 mark before positioning for any meaningful appreciating move.

Technical levels to watch