GBP/USD clings to intraday gains, around mid-1.2100s amid softer USD demand

• GBP/USD staged modest recovery from the 1.2100 mark, or a nearly two-week low.
• Sliding US bond yields kept the USD bulls on the defensive and extended support.
• Hawkish Fed outlook, recession fears limited the USD losses and capped the major.

The GBP/USD pair managed to defend and attract some buying near the 1.2100 mark on Thursday, stalling its recent downfall to a nearly two-week low. The pair maintained its bid tone through the early part of the European session and was last seen trading just above mid-1.2100s.

Despite Fed Chair Jerome Powell's overnight hawkish remarks, the ongoing decline in the US Treasury bond yields failed to assist the US dollar to capitalize on its two-day-old positive trend. This was seen as a key factor that extended some support to the GBP/USD pair, though the attempted recovery lacked bullish conviction and runs the risk of fizzling out rather quickly.

Speaking at the ECB's annual forum on Wednesday, Powell reaffirmed bets for more aggressive rate hikes and said that the US economy is well-positioned to handle tighter policy. Furthermore, concerns that rapidly rising interest rates would pose challenges to global economic growth continued weighing on investors' sentiment, which should act as a tailwind for the safe-haven USD.

In contrast, the Bank of England Governor Andrew Bailey sounded a bit cautious and noted that there were clear signs that the economy is slowing. This, in turn, suggested that the BoE would opt for a more gradual approach toward hiking interest rates amid growing recession fears. This, along with Brexit woes, might hold back traders from placing bullish bets around sterling.

 It is worth recalling that the UK House of Commons on Monday voted in favour of a controversial bill that would unilaterally overturn part of Britain's divorce deal from the EU agreed in 2020. This has raised the risk of fresh tensions with the EU amid the cost of living crisis in the UK, which supports prospects for a further near-term depreciating move for the GBP/USD pair.

On the economic data front, the final UK GDP print matched previous estimates and showed that the economy expanded by 0.8% during the first quarter of 2022. Adding to this, the UK Office for National Statistics reported that the current account deficit ballooned to £51.7 billion or 8.3% of the gross domestic product in the first three months of the current year.

The data, however, did little to provide any meaningful impetus, with the USD price dynamics turning out to be an exclusive driver of the GBP/USD pair's intraday move. Traders now look forward to the US economic docket - featuring the release of the Core PCE Price Index (Fed's preferred inflation gauge) and Weekly Initial Jobless Claims - for short-term opportunities.

Technical levels to watch