• GBP/USD attracts some buyers on Wednesday, albeit lacks follow-through.
• Subdued USD demand acts as a tailwind ahead of the crucial US CPI report.
• Bets that the BoE is nearing the end of its rate-hiking cycle cap further gains.

The GBP/USD pair edges higher during the Asian session on Wednesday, albeit lacks follow-through and remains confined in a familiar range held over the past week or so. Spot prices currently trade around the 1.2500 psychological mark and remain well within the striking distance of a three-month low touched last Thursday.

The US Dollar (USD) languishes near the weekly low and turns out to be a key factor acting as a tailwind for the GBP/USD pair, though expectations that the Bank of England (BoE) is nearing the end of its rate-hiking cycle cap the upside. BoE Governor Andrew Bailey told lawmakers last week that the central bank is much nearer to ending its run of rate increases. Furthermore, the UK employment details released on Tuesday pointed to a cooling labour market and do not justify another rate hike after the widely anticipated lift-off in September.

The Federal Reserve (Fed), on the other hand, is expected to pause at its policy meeting next week. The markets, however, are still pricing in the possibility of one more 25 bps rate hike by the end of this year. The bets were reaffirmed by the upbeat US macro data released last week, which pointed to a resilient economy. Moreover, the fact that inflation is not cooling fast enough should allow the Fed to keep rates higher for longer. Hence, the focus remains on the US CPI report, due later today, which will provide fresh cues about the Fed's future rate hike path.

In the meantime, the prospects for further policy tightening by the US central bank remain supportive of elevated US Treasury bond yields. This, along with the prevalent cautious market mood, should act as a tailwind for the safe-haven Greenback and contribute to keeping a lid on any meaningful appreciating move for the GBP/USD pair. Traders now look to the UK macro data dump, including the monthly GDP report, to grab short-term opportunities during the European session. The fundamental backdrop, meanwhile, warrants some caution for bulls.

Technical levels to watch