• GBP/USD struggled to capitalize on the post-UK CPI uptick and dropped to a fresh YTD low.
• The Fed’s hawkish outlook pushed the USD to a near two-year peak and acted as a headwind.
• The risk-on impulse capped the safe-haven buck and helped limit deeper losses for the major.

The GBP/USD pair seesawed between tepid gains/minor losses through the early European session and was last seen trading in neutral territory, around the 1.3000 psychological mark.

The pair attracted some buying on Wednesday and touched an intraday high level of 1.3025 following the release of hotter-than-expected UK consumer inflation figures. The UK Office for National Statistics reported that headline CPI jumped from 6.2% in the previous month to 7% YoY in March - the highest level since 1992.

Adding to this, the Core CPI, which excludes volatile food and energy prices, rose to 5.7% YoY from the 5.2% reported in February and provided modest lift to the British pound. That said, a combination of factors held back bulls from placing aggressive bets and kept a lid on any meaningful gains for the GBP/USD pair.

The Bank of England had softened its language over the need for future interest rate hikes amid worries about the potential economic fallout from the war in Ukraine. This, along with the underlying bullish sentiment surrounding the US dollar, prompted some intraday selling and drag the GBP/USD pair to its lowest level since November 2021.

The USD shot to a near two-year peak and continued drawing support from expectations for a more aggressive policy tightening by the Fed. The bets were reaffirmed by Fed Governor Lael Brainard's comments, saying that the US central bank will proceed with a series of interest rate hikes, as well as an effort to trim its balance sheet.

Apart from this, a goodish bounce in the US Treasury bond yields underpinned the greenback, though a generally positive risk tone kept a lid on any meaningful gains. This, in turn, was seen as the only factor that helped limit deeper losses for the GBP/USD pair and assisted spot prices to recover around 30 pips from the 1.2975 area.

Market participants now look forward to the US Producer Price Index, due for release later during the early North American session. This, along with the US bond yields, will influence the USD and provide some impetus to the GBP/USD pair. Traders will further take cues from developments surrounding the Russia-Ukraine saga to grab some short-term opportunities.

Technical levels to watch