GBP/USD recovers modest intraday losses, flirts with 1.2600 mark amid fresh USD selling

• GBP/USD attracted some dip-buying on Tuesday amid renewed USD weakness.
• A goodish pickup in the shared currency dragged the buck to a fresh monthly low.
• The risk-off mood should limit losses for the greenback and cap gains for the pair.

The GBP/USD pair reversed modest intraday losses and climbed to the top end of its daily trading range, closer to the 1.2600 round-figure mark during the early European session.

Following a brief consolidation, the US dollar came under some renewed selling pressure and dropped to a fresh monthly low on Tuesday amid a goodish pickup in demand for the shared currency. This, in turn, was seen as a key factor that assisted the GBP/USD pair to attract some dip-buying near the mid-1.2500s, though the uptick lacked bullish conviction.

The worsening global economic outlook continued weighing on investors' sentiment and triggered a fresh bout of global risk-aversion trade. This was evident from a sea of red across the equity markets, which should act as a tailwind for the safe-haven buck amid expectations that the Fed would need to take more drastic action to bring inflation under control.

Apart from this, the UK-EU impasse over the Northern Ireland protocol should hold back traders from placing aggressive bullish bets around the British pound. Hence, it will be prudent to wait for strong follow-through buying before positioning for an extension of the recent strong recovery move from the YTD low, around the 1.2155 region touched earlier this month.

Market participants now look forward to the release of PMI prints from the UK and the US, which will drive the market risk sentiment and influence the USD price dynamics. Apart from this, traders will take cues from Fed Chair Jerome Powell's speech during the early North American session. This, in turn, should provide some meaningful impetus to the GBP/USD pair.

Technical levels to watch