• GBP/USD catches fresh bids on Wednesday and reverses a major part of the overnight losses.
• The stronger UK CPI report lifts bets for at least a 25 bps BoE rate hike and boosts the Sterling.
• Expectations that the Fed will soften its hawkish stance undermine the USD and lend support.

The GBP/USD pair regains positive traction following the previous day's pullback from its highest level since February 02 and builds on its intraday gains through the early European session on Wednesday. The buying interest picks up pace following the release of the UK consumer inflation figures and pushes spot prices to a fresh daily high, beyond mid-1.2200s in the last hour.

The UK Office for National Statistics (ONS) reported that the headline CPI rose more than anticipated, by 1.1% in February as compared to the 0.6% decline recorded in the previous month. Adding to this, the yearly rate unexpectedly climbed to 10.4% during the reported month from 10.1% in January, again beating consensus estimates. The data increases pressure on the Bank of England (BoE) to hike by 25 bps at the very least on Thursday and provides a modest lift to the British Pound.

The US Dollar (USD), on the other hand, languishes near a multi-week low amid the prospects for a less aggressive tightening by the Federal Reserve (Fed). In fact, the markets seem convinced that the US central bank will soften its hawkish stance and deliver a smaller 25 bps at the end of the two-day FOMC policy meeting later this Wednesday. Apart from this, a modest pullback in the US Treasury bond yields, along with easing fears of a full-blown banking crisis, undermine the safe-haven buck.

The upside for the GBP/USD pair, however, seems limited as traders might prefer to move to the sidelines heading into the key central bank event risks - the highly-anticipated Fed decision on Wednesday, followed by the BoE meeting on Thursday. Hence, any subsequent move-up runs the risk of fizzling out rather quickly. That said, a sustained move beyond the weekly swing high, around the 1.2285 region, will be seen as a fresh trigger for bulls and pave the way for a further appreciating move.

Technical levels to watch