GBP/USD rebounds swiftly from one-week low, rallies back closer to mid-1.2300s

• GBP/USD reverses an intraday slide to a one-week low amid the emergence of some USD selling.
• A generally positive risk tone undermines the safe-haven buck and lends some support to the pair.
• Bets for more rate hikes by the Fed and the BoE warrant caution before placing directional bets.

The GBP/USD pair attracts some dip-buying buying near the 1.2275 area, or a one-week low touched earlier this Monday and builds on its intraday ascent through the first half of the European session. Spot prices climb to a fresh daily high, around the 1.2335-1.2340 region in the last hour and for now, seem to have stalled the retracement slide from over a two-month high set on Friday.

The US Dollar (USD) surrenders its intraday gains to a one-week high and turns out to be a key factor offering some support to the GBP/USD pair. The prevalent risk-on mood - as depicted by a generally positive tone around the equity markets - is seen weighing on traditional safe-haven assets, including the Greenback. Apart from this, the prospects for additional interest rate hikes by the Bank of England (BoE) underpins the British Pound and contributes to the pair's goodish intraday rally of around 65 pips.

It is worth recalling that BoE Governor Andrew Bailey said last week that interest rates may have to move higher if there were signs of persistent inflationary pressure. Adding to this, the final UK GDP print released on Friday showed that the economy expanded by 0.1% in Q4 and avoided a technical recession, reaffirming hawkish BoE expectations. The Federal Reserve (Fed), meanwhile, is also anticipated to stick to its inflation-fighting rate hikes amid worries that rising energy prices will push inflation higher.

In fact, the current market pricing indicates around a 60% chance of a 25 bps lift-off at the next FOMC monetary policy meeting in May. This is reinforced by a fresh leg up in the US Treasury bond yields, which could help limit the downside for the USD and keep a lid on any meaningful upside for the GBP/USD pair. Traders might also refrain from placing aggressive directional bets ahead of key US macro data scheduled at the beginning of a new month, warranting caution before positioning for further gains.

This week's rather busy US economic docket kicks off with the release of ISM Manufacturing PMI later during the early North American session on Monday. This will be followed by JOLTS Job Openings on Tuesday, the ADP report on private-sector employment and ISM Services PMI on Wednesday, and the crucial US monthly employment report - popularly known as NFP - on Friday. The latter will influence the near-term USD price dynamics and determine the next leg of a directional move for the GBP/USD pair.

Technical levels to watch