• GBP/USD stalls the overnight pullback and draws support from a modest USD downtick.
• Retreating US bond yields and a slightly positive risk tone undermines the safe-haven buck.
• Traders now look to UK/US PMIs for some impetus ahead of the Jackson Hole Symposium.

The GBP/USD pair struggles to gain any meaningful traction and oscillates in a narrow trading band, below mid-1.2700s through the Asian session on Wednesday. Spot prices, however, seem to have stalled the overnight retracement slide from the 1.2800 mark, or a one-and-half-week high, and remain at the mercy of the US Dollar (USD) price dynamics.

A modest downtick in the US Treasury bond yields fails to assist the USD Index (DXY), which tracks the Greenback against a basket of currencies, to capitalize on the gains registered on Tuesday to its highest level since July 12. Apart from this, a positive tone around the US equity futures undermines the safe-haven buck and acts as a tailwind for the GBP/USD pair. The British Pound (GBP) draws additional support from rising bets for more rate hikes by the Bank of England (BoE).

In fact, the current market pricing indicates a more than 80% chance of a 25 bps lift-off at the next BoE meeting in September. The bets were lifted by the fact that wages in the UK touched a new record growth rate in the second quarter, which adds to worries about long-term inflation even after 14 consecutive rate hikes to a 15-year high in August. Adding to this, the upbeat UK GDP report and slightly higher UK CPI print support prospects for further policy tightening by the BoE.

The Federal Reserve (Fed), meanwhile, is also expected to stick to its hawkish stance and keep interest rates higher for longer. Apart from this, concerns about the worsening economic conditions in China should contribute to limiting the downside for the buck and capping gains for the GBP/USD pair. Traders also seem reluctant to place aggressive bets ahead of the crucial Jackson Hole Symposium, where comments by central banks should infuse volatility in the markets.

In the meantime, Wednesday's release of the flash PMI prints from the UK and the US will be looked upon for short-term trading opportunities. The data will provide fresh insight into the overall economic health and whether the respective central banks can afford to increase interest rates further, which, in turn, should influence the GBP/USD pair. The fundamental backdrop, meanwhile, makes it prudent to wait for strong follow-through buying before positioning for further gains.

Technical levels to watch