GBP/USD retreats from over one-week high, up a little around 1.1200 mark

• GBP/USD climbs to over one-week high as the UK withdraws plan to scrap higher tax rate.
• The UK’s bleak economic outlook acts as a headwind for the sterling and caps the upside.
• Aggressive Fed rate hike bets continue to underpin the USD and prompt intraday selling.

The GBP/USD pair fades an intraday bullish spike and retreats nearly 100 pips from the 1.1280 area, or over a one-week high touched earlier this Monday.

The British pound gets a lift after UK Finance Minister Kwasi Kwarteng confirmed that his government will not go ahead with a plan to scrap a 45% rate of income tax. This, in turn, helps ease the concerns about the UK's ballooning public debt and allows the GBP/USD pair to build on last week's recovery move from an all-time low.

The positive momentum, however, runs out of steam near the 1.1280 region amid a bleak outlook for the UK economy. This, along with the underlying bullish sentiment surrounding the US dollar, further contributes to capping the GBP/USD pair. This, in turn, warrants some caution before positioning for any further intraday appreciating move.

The markets seem convinced that the Federal Reserve will stick to its aggressive rate hiking cycle to curb inflation and have been pricing in another supersized 75 bps increase in November. This continues to lend some support to the USD, though a combination of factors is holding back traders from placing aggressive bullish bets.

The US Treasury bond yields are prolonging their recent pullback from over a multi-year high touched last week. Apart from this, signs of stability in the financial markets - as depicted by a positive tone around the US equity markets - further contribute to keeping a lid on the safe-haven greenback, at least for the time being.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has formed a near-term bottom. There isn't any major market moving data due for release from the UK, while the US economic docket features the ISM Manufacturing PMI. This, along with the US bond yields and the broader risk sentiment, might influence the USD.

Technical levels to watch