GBP/USD consolidates in a range, holds steady above 1.2000 mark amid softer USD

• GBP/USD oscillates in a narrow trading band through the early part of trading on Monday.
• Retreating US bond yields keeps the USD bulls on the defensive and lends some support.
• Brexit anxiety, recession fears hold back bulls from placing fresh bets and cap the upside.

The GBP/USD pair struggles to capitalize on Friday's goodish rebound from a technically significant 200-day Simple Moving Average (SMA) and kicks off the new week on a subdued note. The pair, however, manages to hold comfortably above the 1.2000 psychological mark through the Asian session amid a mildly softer tone surrounding the US Dollar.

The ongoing retracement slide in the US Treasury bond yields weighs on the USD bulls on the defensive, which, in turn, lends some support to the GBP/USD pair. That said, a combination of factors acts as a tailwind for the Greenback and keeps a lid on any meaningful upside for the major, warranting caution for aggressive bullish traders. Growing acceptance that the Federal Reserve tighten its monetary policy further to tame stubbornly high inflation, along with looming recession risks, helps limit the downside for the USD.

In fact, the US macro data released recently indicated that inflation isn't coming down quite as fast as hoped and pointed to an economy that remains resilient despite rising borrowing costs. This should allow the Fed to stick to its hawkish stance for longer. Adding to this, a slew of FOMC members backed the case for higher rate hikes and opened the door for a 50 bps lift-off at the March policy meeting. This should help limit the downside for the US bond yields and supports prospects for the emergence of some USD dip-buying.

Apart from this, anxiety over the new UK-UK Brexit deal on the Northern Ireland Protocol is holding back traders from placing bullish bets around the British Pound and contributing to capping the GBP/USD pair. The Democratic Unionist Party (DUP) remains concerned over key aspects of the agreement and appears split since the Windsor Framework was announced last Monday. In fact, the DUP leader Sir Jeffrey Donaldson refused to oppose it outright 
even as senior MPs strongly criticised the agreement.

The price action, meanwhile, indicates that an additional rate hike by the Bank of England (BoE) is already fully priced in the markets. Moreover, some analysts still hope that the UK central bank would pause the current tightening cycle, suggesting that the path of least resistance for the GBP/USD pair is to the downside. Hence, any meaningful upside remains elusive ahead of this week's key event/data risks - the Fed Chair Jerome Powell's semi-annual congressional testimony, the monthly UK GDP print and the US NFP report.

Technical levels to watch