GBP/USD refreshes daily high, looks to build on momentum beyond 1.2200 amid softer USD

• GBP/USD bounces off the weekly low touched on Wednesday amid modest USD weakness.
• A positive tone around the equity markets is seen undermining the safe-haven greenback.
• Recession fears, US-China tensions, hawkish remarks by Fed officials to limit the USD losses.
• Investors also seem reluctant ahead of the BoE decision on Thursday and the NFP on Friday.

The GBP/USD pair stalls this week's downfall from the highest level since late June and attracts some buying near the 1.2135 area, or a weekly low touched this Wednesday. The pair refreshes daily high during the early European session, with bulls now looking to build on the momentum beyond the 1.2200 mark.

The US dollar struggles to capitalize on the overnight goodish bounce from a multi-week low and edged lower on Wednesday, which, in turn, offers support to the GBP/USD pair. A modest recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - is undermining the safe-haven buck. That said, a combination of factors could limit any deeper USD losses and cap the upside for the major, at least for the time being.

Against the backdrop of growing recession fears, mounting diplomatic tensions over US House Speaker Nancy Pelosi's Taiwan visit should keep a lid on any optimistic move in the markets. Furthermore, the overnight hawkish remarks by Fed officials, hinting that more interest rates are coming in the near term, might act as a tailwind for the greenback. This could hold back bulls from placing aggressive bets around the GBP/USD pair ahead of the central bank event risk.

The Bank of England is scheduled to announce its monetary policy decision on Thursday and is expected to hike interest rates by 50 bps, marking the largest increase since 1995. The markets, however, seem divided over further rate hikes. Hence, the focus would be on the near-term policy outlook, which will influence the British pound. Traders would then shift the focus to the release of the closely-watched US monthly jobs report, popularly known as NFP on Friday.

In the meantime, Wednesday's release of the final UK Services PMI and the US ISM Serviced PMI would be looked upon for short-term opportunities around the GBP/USD pair. That said, any meaningful market reaction is more likely to remain short-lived, warranting some caution before determining the next leg of a directional move.

Technical levels to watch