GBP/USD climbs to 1.2100 amid Brexit optimism and softer USD, lacks follow-through

• GBP/USD attracts some dip-buying on Tuesday and turns positive for the second straight day.
• The latest optimism over a new Brexit deal underpins the British Pound and lends support.
• A modest USD contributes to the uptick, though hawkish Fed expectations could cap gains.

The GBP/USD pair reverses an intraday dip to the 1.2025 area and turns positive for the second straight day on Tuesday. The momentum lifts spot prices to a four-day high during the first half of the European session, with bulls now awaiting a sustained move beyond the 1.2100 round-figure mark.

The British Pound continues to draw support from the optimism over the confirmation of a final deal on the Northern Ireland protocol between the UK and EU. Apart from this, rising bets for additional rate hikes by the Bank of England (BoE), along with the emergence of some US Dollar selling, lend support to the GBP/USD pair. The upside, however, remains capped amid reports that the former UK Prime Minister Borish Johnson asked the Democratic Unionist Party (DUP) leaders to be cautious and think hard before backing the "Windsor framework".

Furthermore, a combination of factors should act as a tailwind for the buck and further contribute to keeping a lid on GBP/USD pair, at least for now. Expectations that the Federal Reserve will stick to its hawkish stance for longer to tame stubbornly high inflation triggers a fresh leg up in the US Treasury bond yields. Moreover, a weaker risk tone - amid looming recession risks and geopolitical tensions - could lend support to the safe-haven Greenback. This, in turn, warrants some caution before placing aggressive bullish bets around the major.

Market participants now look forward to speeches by BoE officials - Deputy Governor Jon Cunliffe, Chief Economist Huw Pill and Monetary Policy Committee member Catherine Mann. Later during the early North American session, traders will take cues from the US economic docket, featuring the release of Regional Manufacturing PMIs and the Conference Board's Consumer Confidence Index. This, along with the US bond yields and the broader market risk sentiment, should influence the USD price dynamics and provide some impetus to the GBP/USD pair.

Technical levels to watch