GBP/USD eases from daily high, up a little around 1.1850 area amid modest USD downtick

• GBP/USD edges higher on Tuesday amid subdued USD demand, though lacks bullish conviction.
• China’s COVID-19 woes, geopolitical risks should limit any meaningful downside for the greenback.
• A bleak outlook for the UK economy undermines the Sterling and contributes to capping the pair.

The GBP/USD pair struggles to capitalize on its modest intraday gains and retreats a few pips from the daily high, though lacks follow-through. The pair is currently placed just below the mid-1.1800s, up around 0.20% for the day, and remains at the mercy of the US Dollar price dynamics.

The USD Index, which measures the greenback's performance against a basket of currencies, eases from over a one-week high touched on Monday and acts as a tailwind for the GBP/USD pair. Apart from this, expectations that the Bank of England will continue raising rates to combat stubbornly high inflation offer additional support to the Sterling. That said, any meaningful upside seems elusive, warranting some caution before placing aggressive bullish bets around the major.

A bleak outlook for the UK economy might continue to undermine the British Pound and cap gains for the GBP/USD pair. It is worth mentioning that the UK Office for Budget Responsibility (OBR) now projects the UK GDP to slump by 1.4% next year as compared to a growth of 1.8% forecast in March. Furthermore, the worsening COVID-19 situation in China, along with geopolitical risks, should lend support to the buck and contribute to keeping a lid on the major, at least for now.

There isn't any major market-moving economic data due for release from the UK on Tuesday, leaving the GBP/USD pair at the mercy of the USD price dynamics. Later during the early North American session, traders will take cues from the release of the Richmond Manufacturing Index from the US. This, along with a scheduled speech by Cleveland Fed President Loretta Mester, will drive the USD demand and allow traders to grab short-term opportunities around the major.

Technical levels to watch