• GBP/USD gains traction for the second straight day and climbs to over one-month high.
• The prospects for more BoE rate hikes underpin the Sterling and extend some support.
• A combination of factors weighs on the USD and remains supportive of the momentum.

The GBP/USD pair scales higher for the second straight day on Wednesday and climbs to its highest level since mid-January during the early part of the European session. The British Pound remains supported by the stronger wage growth data released on Tuesday, which is expected to keep inflation elevated. The UK Office for National Statistics, meanwhile, reported earlier today that consumer price inflation fell to a three-month low level of 10.5% in December. This, however, is still running at levels last seen in the early 1980s and should maintain pressure on the Bank of England to continue raising interest rates. Apart from this, the emergence of fresh selling around the US Dollar provides an additional boost to the major.

The intraday USD rally - led by the Bank of Japan-inspired sell-off in the Japanese Yen - fades rather quickly amid firming expectations for a less aggressive policy tightening by the Fed. Investors seem convinced that the US central bank will soften its hawkish stance amid signs of easing inflationary pressures. Moreover, the current market pricing indicates a greater chance of a smaller 25 bps lift-off in February. This leads to a fresh leg down in the US Treasury bond yields and continues to weigh on the buck. Apart from this, a mildly positive tone around the equity markets also seems to undermine the safe-haven greenback and supports prospects for an extension of a two-week-old appreciating move for the GBP/USD pair.

Traders now look forward to the US economic docket, highlighting the release of the Producer Price Index (PPI) and monthly Retail Sales figures later during the early North American session. The data, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and provide a fresh impetus to the GBP/USD pair. Nevertheless, the fundamental backdrop favours bulls and suggests that the path of least resistance for spot prices is to the upside. Hence, any immediate market reaction to the upbeat US macro data is more likely to remain limited and might do little to hinder the pair's ongoing positive move.

Technical Outlook

From a technical perspective, the overnight break through the 1.2250 supply zone and a subsequent move beyond the 1.2300 mark add credence to the positive outlook. Furthermore, oscillators on the daily chart have just started gaining positive traction and support prospects for a further near-term appreciating move. Hence, some follow-through strength towards reclaiming the 1.2400 mark, en route to the December 2022 swing high near the 1.2445 area, looks like a distinct possibility. The momentum could get extended further and allow the GBP/USD pair to reclaim the 1.2500 psychological mark for the first time since June.

On the flip side, any meaningful slide below the 1.2300 mark now seems to attract fresh buyers and remain limited near the 1.2250 resistance breakpoint. A convincing break below the latter might prompt some technical selling and drag the GBP/USD pair further towards the 1.2200 mark. This is followed by support near the 1.2170-1.2165 area, below which the fall could get extended towards the 1.2100 mark.