GBP/USD holds steady around mid-1.2400s, upside potential seems limited

• GBP/USD manages to defend 50-day SMA, though struggles to attract any meaningful buying.
• A combination of factors keeps the USD bulls on the defensive and lends support to the major.
• Speculations for fewer rate hikes by BoE undermine the GBP and contribute to capping the pair.

The GBP/USD pair attracts some dip-buying near the 1.2415 region on Monday and trades with a mild positive bias through the first half of the European session. Spot prices, however, remain well within the striking distance of a nearly one-month low touched last week and currently trade around the 1.2445-1.2450 area up less than 0.10% for the day.

The US Dollar (USD) edges lower for the second successive day, below a two-month high touched on Friday, and turns out to be a key factor that assists the GBP/USD pair to defend the 50-day Simple Moving Average (SMA). A surprise breakdown in the US debt ceiling negotiations raises doubts that a deal will be reached soon and fuels fears of an unprecedented American debt default. This, along with less hawkish remarks by Federal Reserve (Fed) Chair Jerome Powell, keeps the USD bulls on the defensive through the first half of trading on Monday.

The upside for the GBP/USD pair, however, remains capped expectations that fewer rate increases by the Bank of England (BoE) will be needed in the coming months to bring down inflation. The bets were lifted by rather unimpressive UK jobs data released on Tuesday and BoE Governor Andrew Bailey's comments last week, saying that there were some signs of a cooling of inflation and that the labour market is loosening a little. This, in turn, holds back traders from placing aggressive bullish bets around the major and acts as a headwind.

Furthermore, worries over slowing global growth overshadow the optimism over a potential improvement in US-China relations and benefit the Greenback's relative safe-haven status. This is seen as another factor that contributes to capping the upside for the GBP/USD pair in the absence of any relevant market-moving economic data, either from the UK or the US. Traders also seem reluctant and wait on the sidelines ahead of a meeting between President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling.

Technical levels to watch