• GBP/USD catches fresh bids on Wednesday amid the emergence of some USD selling.
• Retreating US bond yields, a mildly positive risk tone seems to weigh on the greenback.
• Aggressive Fed rate hike bets should limit the USD losses and cap the upside for the pair.
• Softer UK CPI eases pressure on the BoE to act and might also contribute to keeping a lid.

The GBP/USD pair attracts some dip-buying near the 1.1480 region and hits a fresh daily high during the early part of the European session. The intraday positive move lifts spot prices to the mid-1.1500s and is sponsored by the emergence of some US dollar selling.

A modest downtick in the US Treasury bond yields fails to assist the buck to capitalize on the previous day's post-US CPI rally. Apart from this, signs of stability in the financial markets further undermine the safe-haven greenback. This helps offset softer UK consumer inflation figures and turns out to be a key factor pushing the GBP/USD pair higher. That said, any meaningful upside still seems elusive, suggesting the intraday ascent runs the risk of fizzling out rather quickly.

The UK Office for National Statistics reported that the headline CPI decelerated to 9.9% in August from a 40-year high level of 10.1% in the previous month. This might offer some respite to households and eases the pressure on the Bank of England to act more aggressively. In contrast, the stronger US CPI report released on Tuesday all but reaffirmed market expectations that the Fed will keep raising interest rates at a faster pace to combat stubbornly high inflation.

In fact, investors have started pricing in the possibility of a full 1% rate hike at the upcoming FOMC meeting on September 20-21 and another supersized 75 bps increase in November. This should act as a tailwind for the US bond yields and the greenback. Furthermore, the worsening outlook for the UK economy could hold back traders from placing aggressive bullish bets around the British pound. The combination of factors should continue to cap gains for the GBP/USD pair.

Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. This, along with the US bond yields and the broader risk sentiment, might influence the USD and provide some impetus to the GBP/USD pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance is to the downside.

Technical levels to watch