GBP/USD climbs to 1.2230 area, fresh daily high amid renewed USD selling bias

• Attracts dip buying in the 1.2180 area amid the emergence of fresh USD selling on Thursday.
• Diminishing odds for a larger Fed rate hike in September, the risk-on mood undermines the USD.
• Bulls might still wait for some follow-through buying before positioning for any further move up.

The GBP/USD pair recovers nearly 50 pips from the intraday low and touches a fresh daily peak, around the 1.2230 region during the early European session.

The US dollar struggles to capitalize on its modest bounce and meets with fresh supply on Thursday, which, in turn, offers some support to the GBP/USD pair. Wednesday's softer US consumer inflation figures force investors to scale back expectations for a more aggressive rate hike by the Fed. Apart from this, a generally positive tone around the equity markets undermines the safe-haven buck.

That said, a combination of factors should help limit any further USD losses and cap the upside for the GBP/USD pair, at least for the time being. Growing worries about a global economic downturn, along with the US-China tensions over Taiwan, might keep a lid on the latest optimism in the markets. Adding to this, the overnight hawkish remarks by Fed officials should act as a tailwind for the greenback.

In fact, Chicago Fed President Charles Evans noted that inflation is still unacceptably high and expects the Fed to continue to raise the interest rate to 3.25%-3.50% by year-end. Separately, Minneapolis Fed President Neel Kashkari said that the Fed is far away from declaring victory on inflation and that he had recommended the interest rate at 3.9% by the end of 2022 in the June economic projections.

Furthermore, the Bank of England's gloomy economic outlook should act as a headwind for the British pound and also contribute to capping the GBP/USD pair. It is worth recalling that the UK central bank last week indicated that a prolonged recession would start in the fourth quarter. Hence, the market focus now shifts to the Preliminary UK GDP report for the second quarter, due for release on Friday.

Even from a technical perspective, the overnight pullback from the vicinity of the monthly peak warrants caution for bulls. This makes it prudent to wait for some follow-through buying beyond the mid-1.2200s before positioning for any further appreciating move. Traders now look forward to the US Producer Price Index (PP) for a fresh impetus later during the early North American session.

Technical levels to watch