GBP/USD slips below mid-1.2600s, away from over one-year top set on Wednesday

• GBP/USD meets with some supply on Thursday and is pressured by a modest US Dollar uptick.
• The Fed’s signal that rates will increase by another 50 bps in 2023 lends support to the USD.
• Bets for more aggressive policy tightening by the BoE should help limit losses for the major.

The GBP/USD pair edges lower during the Asian session on Thursday and moves further away from its highest level since April 2022, around the 1.2700 mark touched the previous day. The pair currently trades just below mid-1.2600s, down nearly 0.15% for the day, though the fundamental backdrop remains tilted in favour of bullish traders.

The US Dollar (USD) edges higher and looks to build on the overnight bounce from a one-month low, which, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair. The modest USD uptick could be attributed to the Federal Reserve's (Fed) hawkish outlook and the intent to resume the rate-hiking cycle, signalling that borrowing costs will increase by another 50 bps by end-December. In the post-meeting press conference, Fed Chair Jerome Powell said that the pause was out of caution, to allow the central bank to gather more information before determining if rates need to rise again.

Furthermore, Powell described US growth and the job market as holding up better than expected. This, in turn, lifted market bets for another 25 bps lift-off at the July FOMC policy meeting, which assists the USD to attract some buyers. The downside for the GBP/USD pair, meanwhile, remains cushioned as market participants seem convinced that the Bank of England (BoE) will be far more aggressive in policy tightening to contain stubbornly high inflation. The bets were reaffirmed by the upbeat UK jobs data released on Tuesday, which came in to show a near-record wage growth and a lower unemployment rate.

This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the upside and supports prospects for an extension of the recent upward trajectory witnessed over the past three weeks or so. Traders now look to the US economic docket, featuring the release of monthly Retail Sales, the usual Weekly Initial Jobless Claims, the Empire State Manufacturing Index, the Philly Fed Manufacturing Index and Industrial Production figures. The data might influence the USD price dynamics later during the early North American session and allow traders to grab short-term opportunities around the major.

Technical levels to watch