GBP/USD pares intraday losses to multi-week low, upside remains capped on stronger USD

• GBP/USD rebounds from a multi-week low, albeit lacks follow-through buying.
• Hawkish remarks by the BoE Governor Bailey boost the GBP and lend support.
• Sustained USD buying caps any further recovery and warrants caution for bulls.

The GBP/USD pair stages a goodish intraday bounce from the 1.2420 area, or over a three-week low touched this Wednesday and climbs to the top end of its daily trading range during the early North American session. The pair, however, remains in the negative territory for the second straight day and is currently placed around the 1.2470-1.2475 region, down over 0.10% for the day.

The British Pound finds some support in reaction to Bank of England (BoE) Governor Andrew Bailey's hawkish remarks and assists the GBP/USD pair to attract some buyers at lower levels. Speaking at the British Chambers of Commerce, Bailey said that inflation is much too high and we need to bring it back sustainably to our 2% target. Bailey added that the easing of labour market tightness is happening at a slower pace than expected in February and the labour market remains very tight.

The upside for the GBP/USD pair, however, remains capped, at least for the time being, amid strong follow-through US Dollar (USD) buying for the second successive day. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, hits a six-week high amid speculations that the Federal Reserve (Fed) will keep rates higher for longer, bolstered by the recent hawkish remarks by several FOMC members. That said, a combination of factors could cap gains for the buck.

US President Joe Biden and Republican leaders have expressed cautious optimism that a deal to raise the US debt ceiling is within reach. This, in turn, boosts investors' confidence and leads to a modest recovery in the global risk sentiment, which is evident from a generally positive tone around the equity markets and undermines the safe-haven Greenback. Apart from this, a modest downtick in the US Treasury bond yields is further holding back the USD bulls from placing aggressive bets.

On the economic data front, the mixed US housing market data did little to impress traders or provide any meaningful impetus to the GBP/USD pair.  Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the buck is to the upside. This makes it prudent to wait for strong follow-through buying before positioning for any further recovery for the major ahead of the BoE's Monetary Policy Report Hearings, scheduled on Thursday.

Technical levels to watch