• GBP/USD struggles to gain any meaningful traction and remains confined in a range.
• Recession fears undermine the GBP and cap the upside amid a modest USD uptick.
• Bets for smaller Fed rate hikes act as a headwind for the USD and help limit losses.
• Traders also seem reluctant to place aggressive bets ahead of the key US CPI report.

The GBP/USD pair seesaws between tepid gains/minor losses through the first half of the European session on Thursday and is currently trading around mid-1.2100s, nearly unchanged for the day.

A bleak outlook for the UK economy has been fueling speculations that the Bank of England (BoE) is nearing the end of the current rate-hiking cycle and undermines the British Pound. Apart from this, a softer risk tone extends some support to the safe-haven US Dollar and contributes to capping the upside for the GBP/USD pair.

Investors turn cautious ahead of Thursday's release of the US consumer inflation data, which will influence the Fed's rate hike path. The Fed policymakers have indicated that they remain committed to combat high inflation and that rates could remain elevated for longer until there is clear evidence that consumer prices are falling.

In the meantime, a slowdown in the US wage growth pointed to easing inflationary pressure and lifted bets for smaller rate hikes by the Fed. Investors now seem convinced that the Fed will soften its hawkish stance, which leads to a further decline in the US Treasury bond yields. This acts as a headwind for the USD and lends support to the GBP/USD pair.

The mixed fundamental backdrop warrants some caution for aggressive traders and positioning for a firm intraday direction around the GBP/USD pair. Even from a technical perspective, the recent breakout through the very important 200-day SMA makes it prudent to wait for strong follow-through selling before confirming a near-term top.

Technical levels to watch