GBP/USD consolidates recent losses to a multi-month low, seems vulnerable near 1.2500

• GBP/USD remains on the defensive near a three-month low touched on Wednesday.
• Bets for more Fed rate hikes continue to underpin the USD and weigh on the major.
• The BoE's signal that rate hikes may be nearing an end contributes to the softer tone.

The GBP/USD pair enters a bearish consolidation phase during the Asian session on Thursday and oscillates in a range just above a three-month low touched the previous day. Spot prices currently trade around the 1.2500 psychological mark and seem vulnerable to prolonging a nearly two-month-old descending trend.

The US Dollar (USD) takes a brief pause following the recent rally to its highest level since March 9 and turns out to be a key factor lending some support to the GBP/USD pair. Any meaningful USD corrective slide, meanwhile, still seems elusive in the wake of firming expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. The bets were reaffirmed by the overnight release of the upbeat US ISM Services PMI, which surpassed even the most optimistic estimates and rose to a six-month high level of 54.5 in August.

Additional details of the report showed a rise in new orders and pointed to a resilient US economy. Furthermore, the higher Prices Paid sub-component was seen as a potential signs of still-elevated inflation pressures. This should allow the Fed to stick to its hawkish stance and increase the odds of an interest rate hike in November. The outlook, meanwhile, remains supportive of elevated US Treasury bond yields, which, along with a generally weaker risk tone, supports prospects for a further appreciating move for the safe-haven buck.

The British Pound (GBP), on the other hand, is undermined by the Bank of England (BoE) Governor Andrew Bailey's dovish signal on Wednesday, saying that the central bank is much nearer to ending its run of interest rate increases. Testifying to Parliament, Bailey and two MPC members said that the BoE is worried that further tightening could cause an unnecessarily harsh recession. This, along with the aforementioned USD supportive fundamental backdrop, suggests that the path of least resistance for the GBP/USD pair is to the downside.

Moving ahead, there isn't any relevant market-moving economic data due for release from the UK on Thursday, leaving spot prices at the mercy of the USD price dynamics. Later during the early North American session, traders will take cues from the Weekly Initial Jobless Claims data from the US and speeches by influential FOMC members. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch