GBP/USD sticks to modest recovery gains around 1.2630, upside potential seems limited

• GBP/USD stages a modest recovery from a one-week low amid a modest USD downtick.
• Bets that the Fed will not cut rates before the June policy meeting should limit USD losses.
• Traders now look to the US ISM PMI and Consumer Sentiment Index for a fresh impetus.

The GBP/USD pair attracts some buying during the Asian session on Friday and for now, seems to have snapped a two-day losing streak to a one-week low, around the 1.2615-1.2610 region touched the previous day. Spot prices currently trade around the 1.2630-1.2635 zone and remain at the mercy of the US Dollar (USD) price dynamics.

The US Personal Consumption Expenditures (PCE) Price Index released on Thursday showed that annual inflation in January was the lowest in three years and reaffirmed bets for an eventual rate cut by the Federal Reserve (Fed). This, in turn, fails to assist the USD Index (DXY), which tracks the Greenback against a basket of currencies, to capitalize on the previous day's bounce from a technically significant 200-day Simple Moving Average (SMA). Apart from this, the prevalent risk-on environment is seen as another factor undermining the Greenback's relative safe-haven status and lending some support to the GBP/USD pair.

The British Pound (GBP), on the other hand, draws support from the fact that the Bank of England (BoE) policymakers have been trying to push back against market expectations for early interest rate cuts. This further contributes to the bid tone surrounding the GBP/USD pair. That said, growing acceptance that the Fed will wait until the June policy meeting before lowering borrowing costs, bolstered by hawkish remarks by several FOMC officials, remains supportive of elevated US Treasury bond yields. This, in turn, should act as a tailwind for the USD and hold back bulls from placing aggressive bets around the GBP/USD pair.

Market participants now look to the release of the final UK Manufacturing PMI, which, along with a scheduled speech by the BoE Chief Economist Huw Pill, could provide some impetus. Later during the early North American session, traders will take cues from the US ISM Manufacturing PMI, the revised Michigan Consumer Sentiment Index and Fed Speak. Apart from this, the US bond yields, and the broader risk sentiment will drive the USD and produce short-term opportunities around the GBP/USD pair. Nevertheless, spot prices seem poised to register weekly losses ahead of important US macro data scheduled at the beginning of a new month.