GBP/USD retreats from multi-week high, slides below mid-1.2200s amid modest USD strength

• GBP/USD snaps a three-day winning streak and is pressured by a modest USD bounce.
• A further recovery in the US bond yields is seen as a key factor benefitting the buck.
• Bets for a less hawkish Fed and a positive risk tone to act as a headwind for the USD.
• Traders now look to the FOMC decision on Wednesday ahead of the BoE on Thursday.

The GBP/USD pair comes under some selling pressure on Tuesday and snaps a three-day winning streak to its highest level since early February, around the 1.2285 region touched the previous day. The pair maintains its offered tone through the first half of the European session and is currently placed near the lower end of its daily range, around the 1.2235-1.2230 zone.

A strong follow-through recovery in the US Treasury bond yields assists the US Dollar (USD) to regain some positive traction and reverse a part of the overnight losses to a five-week low, which, in turn, exerts downward pressure on the GBP/USD pair. The US bond yields breathed a sigh of relief on Monday after the news that UBS will rescue Credit Suisse in a $3.24 billion deal helped ease fears of widespread contagion risk. That said, rising bets for a less aggressive policy tightening by the Federal Reserve (Fed) could act as a headwind for the US bond yields and cap any meaningful upside for the Greenback.

In fact, the markets now seem convinced that the Fed will soften its hawkish stance and deliver a smaller 25 bps rate hike at the end of a two-day policy meeting on Wednesday. Market participants also expect that the US central bank might even cut rates during the second half of the year. The speculations were fueled by the collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank. Hence, investors will closely scrutinize the accompanying monetary policy statement and Fed Chair Jerome Powell's comments during the post-meeting presser for fresh clues about the future rate-hike path.

This will be followed by the Bank of England (BoE) policy meeting, which will play a key role in influencing the British Pound and provide a fresh directional impetus to the GBP/USD pair. In the meantime, a generally positive tone might hold back traders from placing bullish bets around the safe-haven buck and lend some support to the major. Traders now look to the US economic docket, featuring the release of the US Existing Home Sales data later during the early North American session. This, along with some repositioning trade ahead of the key central bank event risks, might produce short-term opportunities.

Technical levels to watch