GBP/USD trades with modest gains above mid-1.2600s as investors look to US inflation data

• GBP/USD gains some positive traction on Thursday amid a modest USD weakness.
• The Fed’s hawkish outlook to limit the USD losses and cap the upside for the pair.
• Traders might also prefer to wait for the release of the crucial US PCE Price Index.

The GBP/USD pair builds on the previous day's goodish rebound from the weekly low and attracts some follow-through buying during the Asian session on Thursday. Spot prices currently trade above mid-1.2600s and draw support from a modest US Dollar (USD) downtick, though lack bullish conviction.

The USD bulls prefer to wait on the sidelines and look to the release of the US Personal Consumption Expenditure (PCE) Price Index for cues about the Federal Reserve's rate-cut path before placing fresh directional bets. In the meantime, expectations that the Fed will keep interest rates higher for longer in the wake of sticky inflation and a still-resilient US economy should act as a tailwind for the buck. Apart from this, a slight deterioration in the global risk sentiment is seen benefitting the Greenback's safe-haven status and contributing to capping gains for the GBP/USD pair.

Meanwhile, the Bank of England (BoE) policymakers have been trying to push back against market expectations for early interest rate cuts. In fact, BoE Deputy Governor Dave Ramsden said on Tuesday that he wants more evidence that inflationary pressures were easing to consider a cut in interest rates. Adding to this, BoE's Catherine Mann said on Wednesday that the spending habits of wealthy Britons make it harder to curb inflation. The markets, however, seem convinced that the BoE will start cutting interest rates soon, which could further act as a headwind for the GBP/USD pair.

Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for the resumption of the GBP/USD pair's two-week-old uptrend. There isn't any relevant market-moving economic data due for release from the UK on Thursday, leaving spot prices at the mercy of the USD Price dynamics. Apart from the key US inflation data, the US economic docket also features the release of the usual Weekly Initial Jobless Claims, the Chicago PMI and Pending Home Sales. This, along with Fed speak, should influence the USD demand.