• • GBP/USD retreats further from over a one-year top and is pressured by resurgent USD demand.
• The Fed’s hawkish outlook triggers a fresh leg up in the US bond yields and benefits the Greenback.
• Bets for more rate hikes by the BoE might continue to underpin the GBP and limit further losses.

The GBP/USD pair comes under some selling pressure on Thursday and extends the previous day's modest pullback from the 1.2700 neighbourhood, or its highest level since April 2022. The pair maintains its offered tone through the early European session and currently trades around the 1.2640 area, just a few pips above the daily low.

The US Dollar (USD) makes a solid comeback and snaps a two-day losing streak to a one-month low touched on Wednesday, which, in turn, is seen as a key factor exerting some downward pressure on the GBP/USD pair. The initial market reaction to the Federal Reserve's (Fed) decision to pause its rate-hiking cycle turns out to be short-lived in the wake of a more hawkish outlook, signalling that borrowing costs may still need to rise by as much as 50 bps by the end of this year.

In fact, the so-called "dot plot" indicated that officials now see rates peaking at 5.6% this year, higher than March's projection of 5.1%. The Fed also sees slightly stronger economic growth and forecasts the economy to grow by 1% this year — up from the 0.4% rise projected in May — before rising 1.1% in 2024 and 1.8% in 2025. This triggers a fresh leg up in the US Treasury bond yields. This, along with a softer risk tone, helps revive demand for the safe-haven buck.

The market sentiment remains fragile in the wake of worries about a global economic slowdown, particularly in China. The fears were further fueled by the disappointing Chinese macro data released earlier today, which tempers investors' appetite for riskier assets and largely overshadows a move by the People’s Bank of China (PBOC) to cut rates on its medium-term loans. The anti-risk flow boosts demand for traditional safe-haven assets and further benefits the Greenback.

The downside for the GBP/USD pair, however, remains cushioned on the back of expectations that the Bank of England (BoE)  will be far more aggressive in policy tightening to contain stubbornly high inflation. In fact, the markets have been pricing in another 25 bps BoE rate hike on June 22 and the bets were reaffirmed by the upbeat UK jobs data released on Tuesday, which showed little signs of cooling off. This, in turn, warrants some caution for aggressive bearish traders.

Market participants now look forward to the US economic docket, featuring the release of monthly Retail Sales, Weekly Initial Jobless Claims, the Empire State Manufacturing Index, Philly Fed Manufacturing Index and Industrial Production. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide a fresh impetus to the GBP/USD pair later during the early North American session.

Technical levels to watch

The GBP/USD pair comes under some selling pressure on Thursday and extends the previous day's modest pullback from the 1.2700 neighbourhood, or its hi

(Market News Provided by FXstreet)