GBP/USD bounces off daily low, flat-lines below mid-1.2000s ahead of US data

• GBP/USD turns lower for the second successive day, though lacks follow-through selling.
• Hawkish Fed expectations, elevated US bond yields underpin the USD and exert pressure.
• A positive risk tone caps the buck and acts as a tailwind amid bets for more BoE rate hikes.

The GBP/USD pair meets with a fresh supply following an intraday uptick to the 1.2075 region and drops to a fresh daily low during the mid-European session. Spot prices manage to rebound from the vicinity of the 1.2000 psychological mark and now seem to have stabilized in neutral territory, just below the 1.2050 area.

The US Dollar remains pinned near a multi-week high, which, in turn, is seen as a key factor exerting some downward pressure on the GBP/USD pair. The FOMC meeting minutes released on Wednesday reaffirmed market expectations that the US central bank will continue to continue to tighten its monetary policy to tame stubbornly high inflation. Furthermore, the recent upbeat US macro data pointed to an economy that remains resilient despite rising borrowing costs and should allow the Fed to stick to its hawkish stance.

In fact, the markets are now pricing in at least a 25 bps lift-off at the next three FOMC policy meetings. This, in turn, assists the US Treasury bond yields to hold steady near the YTD peak and continues to underpin the Greenback. That said, a modest recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - keeps a lid on the safe-haven buck. Apart from this, rising bets for additional interest rate hikes by the Bank of England (BoE) contribute to limiting losses for the GBP/USD pair.

The UK PMIs released on Tuesday indicated that business activity rose more than expected in February and fueled optimism that the country may be able to avoid a steep economic downturn. This, in turn, could persuade the BoE to keep its foot on the accelerator in its race against inflation. Hence, it will be prudent to wait for a sustained break below the 1.2000 mark before confirming that the GBP/USD pair's recent bounce from a technically significant 200-day Simple Moving Average (SMA) has already run out of steam.

Next on tap is the US economic docket, featuring the release of the Prelim (second estimate) Q4 GDP print and the usual Weekly Initial Jobless Claims. Traders will further take cues from comments by influential FOMC members - Atlanta Fed President Raphael Bostic and San Francisco Fed President Mary Daly. This, along with the US bond yields and the broader risk sentiment, will drive the USD and provide some impetus to the GBP/USD pair.

Technical levels to watch