• GBP/USD staged a goodish recovery from sub-1.3000 levels and snapped a four-day losing streak.
• Modest USD profit-taking slide turned out to be a key factor that extended support to spot prices.
• The Fed's hawkish outlook, elevated US bond yields should limit the USD losses and cap the pair.

The GBP/USD pair maintained its bid tone through the early European session and was last seen trading just a few pips below the daily high, around the 1.3030 region.

Having shown some resilience below the 1.3000 psychological mark, the GBP/USD pair staged an intraday recovery from the vicinity of the YTD low and was supported by modest US dollar pullback. The uptick allowed spot prices to snap a four-day losing streak, though lacked bullish conviction. Expectations that the Fed will tighten its policy at a faster pace to keep a lid on soaring inflation acted as a tailwind for the USD and capped gains for the major.

The markets have been pricing in multiple 50 bps rate hikes by the Fed and the bets were reaffirmed by hawkish comments from several FOMC members. Chicago Fed President Charles Evans said on Tuesday that he is comfortable with a round of rate hikes this year that includes two 50 bps increases. Adding to this, Minneapolis Fed President Neel Kashkari - one of the more dovish FOMC members - said that policymakers will need to take even more aggressive action to bring down inflation.

This, along with inflation fears, pushed the yield on the benchmark 10-year US government bond to a level not seen since late 2018. Investors remain worried that the worsening Ukraine crisis would put upward pressure on already high inflation. This was evident from the prevalent cautious market mood, which was seen as another factor that underpinned the greenback. Hence, it will be prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has bottomed out.

There isn't any major market-moving economic data due for release from the UK, while the US economic docket features the release of Existing Home Sales. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the GBP/USD pair. Traders will further take cues from developments surrounding the Russia-Ukraine saga, which would drive the broader market risk sentiment and further contribute to producing short-term opportunities around the pair.

Technical levels to watch