GBP/USD climbs back above 1.2100 mark, refreshes daily high amid weaker USD

• GBP/USD regains traction on Tuesday amid some USD selling for the second straight day.
• A generally positive risk tone seems to be a key factor weighing on the safe-haven greenback.
• The BoE’s bleak economic outlook could act as a headwind for the GBP and cap the upside.

The GBP/USD pair attracts fresh buying on Tuesday and moves back above the 1.2100 mark during the first half of the European session. The pair is currently trading around the 1.2120 region, just a few pips below the overnight swing high.

The US dollar edges lower for the second successive day and turns out to be a key factor lending some support to the GBP/USD pair. The initial market reaction to Friday's blockbuster US monthly jobs data fades rather quickly amid a generally positive risk tone, which is seen weighing on the safe-haven greenback.

That said, speculations that the Fed would stick to its aggressive policy tightening path, along with a goodish pickup in the US Treasury bond yields, should limit losses for the USD. In fact, the current market pricing points to a 70% chance that the Fed would hike interest rates by 75 bps at its September meeting.

The bets were reaffirmed by Fed Governor Michelle Bowman's hawkish remarks on Saturday, saying that the US central bank should consider more 75 bps hikes at coming meetings to bring inflation back down. Hence, the market focus would remain glued to the latest US consumer inflation figures, due for release on Wednesday.

In the meantime, the Bank of England's bleak outlook for the UK economy could hold back traders from placing aggressive bullish bets around the British pound. It is worth recalling that the UK central bank warned last week that a prolonged UK recession would start in the fourth quarter and last five quarters.

This, in turn, warrants some caution before positioning for any further appreciating move amid absent relevant market-moving economic releases, either from the UK or the US. That said, the US bond yields, along with the broader market risk sentiment, might still influence the USD and provide some impetus to the GBP/USD pair.

Technical levels to watch