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  • Renewed USD buying interest prompted some fresh selling around GBP/USD on Wednesday.
  • Stable US bond yields, a softer tone around the equity markets underpinned the greenback.
  • Investors might refrain from placing aggressive bets ahead of US consumer inflation figures.

The GBP/USD pair quickly recovered around 25 pips from daily lows and was last seen trading in the neutral territory, around the 1.3870-75 region during the early European session.

The pair witnessed some selling during the early part of the trading action on Wednesday and retreated further from three-day tops, around the 1.3925 region touched in the previous session. The downtick was exclusively sponsored by the emergence of some fresh buying around the US dollar, though lacked any strong follow-through selling.

Following the overnight pullback, the USD was back in demand and inched back closer to multi-month tops amid signs of stability in the US Treasury bond yields. The greenback was further underpinned by the optimistic US economic outlook, bolstered by the successful COVID-19 vaccine rollouts and the passage of a massive US fiscal spending bill.

Apart from this, a softer tone surrounding the equity markets further underpinned the greenback’s relative safe-haven status and exerted some pressure on the GBP/USD pair. That said, the downside remains limited as investors preferred to move on the sidelines and wait for Wednesday’s release of the latest US consumer inflation figures.

The reflation trade has been fueling speculations for a possible uptick in the US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. Hence, the US CPI report, scheduled for release later during the early North American session, will now play a key role in influencing the USD price dynamics.

In the meantime, the US bond yields would drive the greenback demand. This, along with the broader market risk sentiment, might assist traders to grab some short-term opportunities around the GBP/USD pair.

Technical levels to watch