GBP/USD retreats from multi-month top, back below 1.2300 mark amid modest USD recovery

• GBP/USD retreats from a multi-month top amid a modest intraday USD recovery.
• An uptick in the US bond yields and a softer risk tone underpin the safe-haven buck.
• A bleak outlook for the UK economy further contributes to capping gains for the pair.

The GBP/USD pair kicks off the new week on a positive note and hits its highest level since September 16, though the momentum runs out of steam ahead of mid-1.2300s. The pair trim a part of its intraday gains and retreats below the 1.2300 mark during the early part of the European session.

A combination of factors assists the US Dollar to stage a modest recovery from over a five-month low touched earlier this Monday, which, in turn, acts as a headwind for the GBP/USD pair. Despite the easing of COVID-19 restrictions in China, worries about a deeper global economic downturn continue to weigh on investors' sentiment. This is evident from a softer tone around the equity markets, which, along with an uptick in the US Treasury bond yields, offer some support to the safe-haven buck.

The upbeat US monthly jobs report (NFP) released on Friday and an upside surprise in wages point to a further rise in inflationary pressures. This validates Fed Chair Jerome Powell's forecast that the peak interest rate will be higher than expected and pushes the US Treasury bond yields higher. That said, firming expectations that the US central bank will slow the pace of its policy tightening might keep a lid on any further gains for the USD. In fact, the markets expect a 50 bps rate hike in December.

The British Pound, on the other hand, is undermined by a bleak outlook for the UK economy. Apart from this, Bank of England (BoE) Chief Economist Huw Pill's dovish comments last week, indicating that inflation could begin to fall, might hold back bullish traders from placing aggressive bets around the GBP/USD pair. The mixed fundamental backdrop, meanwhile, suggests that the major is more likely to consolidate its recent strong gains ahead of the final Services PMIs from the UK and the US.g

Later during the early North American session, traders will take cues from the release of the US ISM Services PMI. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch