GBP/USD sticks to modest intraday gains above 1.2700 mark, lacks follow-through

• GBP/USD attracts some buying on Tuesday and draws support from a modest USD downtick.
• The Fed’s hawkish outlook helps limit losses for the buck and acts as a headwind for the pair.
• The BoE’s aggressive rate hike fuels recession fears and contributes to capping the Sterling.

The GBP/USD pair continues to show some resilience below the 1.2700 round-figure mark and regains some positive traction during the Asian session on Tuesday. Spot prices, however, lack any follow-through buying or bullish conviction and currently trade around the 1.2720-1.2725 region, up less than 0.10% for the day.

The US Dollar (USD) edges lower for the second successive day and remains below the 50-day Simple Moving Average (SMA) barrier, which, in turn, is seen as a key factor acting as a tailwind for the GBP/USD pair. That said, the Federal Reserve's (Fed) hawkish outlook could act as a tailwind for the buck and cap the major, at least for the time being. It is worth recalling that the Fed earlier this month decided to pause its year-long rate-hiking cycle, though signalled that borrowing costs may still need to rise as much as 50 bps by the end of this year.

Furthermore, Fed Chair Jerome Powell reiterated that the central bank will likely raise interest rates again this year, albeit at a "careful pace", to contain high inflation. Powell, during his two-day semi-annual congressional testimony, added that the Fed doesn't see rate cuts happening any time soon and is going to wait until it is confident that inflation is moving down to the 2% target. Apart from this, worries about a global economic downturn might continue to benefit the Greenback's relative safe-haven status and keep a lid on the GBP/USD pair.

Furthermore, fears that the British economy is heading for recession mounted sharply following a surprise 50 bps rate hike by the Bank of England (BoE) last Thursday. Investors also seem worried that further increases in interest rates to combat high inflation will spark a mortgage crisis and raise borrowing costs for government debt. This might further hold back traders from placing aggressive bullish bets around the British Pound, warranting some caution before positioning for any meaningful appreciating move for the GBP/USD pair, at least for the time being.

There isn't any relevant market-moving economic data due for release from the UK on Tuesday. Meanwhile, the US economic docket features Durable Goods Orders, the Conference Board's Consumer Confidence Index, New Home Sales and Richmond Manufacturing Index. The data might influence the USD price dynamics and provide some impetus to the GBP/USD pair later during the early North American session. The focus will then shift to speeches by Fed Chair Jerome Powell and BoE Governor Andrew Bailey at a panel discussion in Sintra on Wednesday.

Technical levels to watch