• GBP/USD is seen consolidating its recent downfall to a nearly one-month trough.
• Bets for more Fed rate hikes underpin the USD and act as a headwind for the pair.
• The downside seems limited as traders now await the crucial BoE policy decision.

The GBP/USD pair enters a bearish consolidation phase during the Asian session on Thursday and oscillates in a narrow range just above a nearly one-month low, around the 1.2680 region touched the previous day. Spot prices currently trade around the 1.2700 mark as traders seem reluctant to place aggressive bets and prefer to wait for the latest monetary policy update from the Bank of England (BoE), due later today.

A sharp deceleration in the headline UK CPI, to the 7.9% YoY rate in June from the 8.7% previous, might force the UK central bank to revert to a smaller 25 bps lift-off. The move will push the benchmark rate to 5.25%, or the highest level since December 2007. That said, some investors are anticipating another 50 bps rate hike as the inflation is still significantly above the BoE's 2% target. Hence, the focus will remain glued to the accompanying monetary policy statement and the post-meeting press conference. Against the backdrop of the recent swings in expectations about the future rate-hike path, the outlook will play a key role in influencing the British Pound and provide a fresh directional impetus to the GBP/USD pair.

In the meantime, the underlying bullish sentiment surrounding the US Dollar (USD) is seen acting as a headwind for spot prices. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, stands tall near its highest level since July 7 and remains supported by expectations that the resilient US economy should allow the Federal Reserve (Fed) to keep rates higher for longer. The bets were reaffirmed by the upbeat US ADP report, which showed that private-sector employers added 324K jobs in July against the 189K expected. This overshadows the Fitch downgrade of the US credit rating and remains supportive of elevated US Treasury bond yields, which underpins the USD and caps the GBP/USD pair.

Apart from the key central bank event risk, traders on Thursday will confront the release of US macro data - the usual Weekly Initial Jobless Claims, the ISM Services PMI and Factory Orders - later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and contribute to producing short-term trading opportunities around the GBP/USD pair. The market attention will then turn to the closely-watched US monthly employment details, popularly known as the NFP report on Friday.

Technical levels to watch