GBP/USD struggles below 1.2500, 200-day SMA is the last line of defence for bulls

• GBP/USD kicks off the new week on a positive note, albeit lacks bullish conviction.
• A modest USD pullback from a multi-week top is seen lending support to the major.
• Hawkish Fed and expectations for an end of the BoE rate-hiking cycle cap the upside.

The GBP/USD pair opens with a modest bullish gap on the first day of a new week, albeit lacks any follow-through and remains below the 1.2500 psychological mark through the first half of the Asian session.

Having recorded its longest winning streak in nearly nine years, the US Dollar (USD) pulls back from a six-month high amid some repositioning trade ahead of this week's key US macro data and the European Central Bank (ECB) event risk. The crucial US consumer inflation figures will be released on Wednesday, followed by the Producer Price Index (PPI) on Thursday, which will be accompanied by monthly Retail Sales data. This, along with volatility infused by the highly-anticipated ECB decision, will influence the USD price dynamics and provide some meaningful impetus to the GBP/USD pair.

In the meantime, growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer remains supportive of elevated US Treasury bond yields and continues to lend some support to the Greenback. In fact, The Wall Street Journal, though reaffirmed a pause in September, reported that some officials still prefer to err on the side of raising rates too much, reasoning that they can cut them later. This, along with expectations that the Bank of England (BoE) is nearing the end of its policy tightening cycle, does little to lift the GBP/USD pair away from a three-month low touched last week.

BoE Governor Andrew Bailey told lawmakers on Wednesday that the central bank is much nearer to ending its run of rate increases, though warned that borrowing costs might still have further to rise because of stubbornly high inflation. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the GBP/USD pair is to the downside. Bearish traders, however, need to wait for a sustained break and acceptance below the very important 200-day Simple Moving Average (SMA), currently pegged around the 1.2425 region, before placing fresh bets.

Technical levels to watch