GBP/USD retreated from one-month peak, still well bid above 1.2600 amid weaker USD

• GBP/USD climbed to a fresh monthly low and was supported by the prevalent USD selling bias.
• Speculations that the Fed could pause the rate hike cycle, the risk-on mood weighed on the buck.
• Doubts over any further BoE rate hikes, Brexit woes held back bulls from placing aggressive bets.

The GBP/USD pair trimmed a part of its intraday gains to a one-month low and was seen trading near the 1.2625-1.2620 area, up 0.25% during the early European session.

The pair gained positive traction for the third successive day on Friday - also marking the sixth day of a positive move in the previous seven - and confirmed a bullish breakout through the 1.2600 mark. The momentum pushed spot prices to the highest level since April 26 and was sponsored by the prevalent US dollar selling bias.

The FOMC meeting minutes released on Wednesday suggested that the Fed could pause the rate hike cycle after two 50 bps hikes each in June and July amid the worsening economic outlook. The speculations were fueled by Thursday's release of the Prelim US GDP report, which showed that the economy contracted by a 1.5% annualized pace in Q1.

Doubt over the Fed's ability to bring inflation under control without sinking the economy into recession led to an extension of the recent decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond fell to a six-week low, which, along with the risk-on impulse, dragged the USD to a fresh one month low.

That said, diminishing odds for any further interest rate hikes by the Bank of England and the UK-EU impasse over Northern Ireland acted as a headwind for the British pound. This was seen as the only factor that held back bulls from placing aggressive bets and behind the GBP/USD pair's intraday pullback of around 40 pips from the daily high.

In the absence of any major market-moving economic releases from the UK, the USD price dynamics will continue to play a key role in influencing the GBP/USD pair. Later during the early North American session, the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - could allow traders to grab short-term opportunities.

Technical levels to watch