GBP/USD surrenders modest intraday gains amid modest USD uptick, holds above 1.2000 mark

• GBP/USD struggles to capitalize on its modest intraday uptick to levels just above mid-1.2000s.
• Hawkish Fed expectations, recession fears underpin the USD and cap the upside for the major.
• Expectations that the BoE’s rate-hiking cycle is nearing the end act as a headwind for the GBP.

The GBP/USD pair attracts some sellers near the 1.2055 area on Monday and stalls its recovery move from the lowest level since January 6 touched on Friday.

The pair retreats to the lower end of its daily range during the first half of the European session, though manages to hold above the 1.2000 psychological mark.

Hopes of an imminent breakthrough in trade negotiations regarding the Northern Ireland Protocol support the Pound Sterling.

A meeting between trading partners in Culloden on Friday, February 17, raised the possibility of a two tier 'red' and 'green' system differenting between goods destined for Ulster and mainland Ireland with less cumbersome barriers to the former. However, in the absence of any concrete outcome to the intratable issue the uptick for the major stalls. 

Meanwhile, a combination of supporting factors assists the US Dollar, which, in turn, acts as a headwind for the GBP/USD pair.

Against the backdrop of looming recession risks, fresh geopolitical tensions continue to weigh on investors' sentiment and benefit the Greenback's relative safe-haven status. Adding to this, firming expectations that the Fed will stick to its hawkish stance provide a modest lift to the USD.

In fact, the markets are now pricing in at least a 25 bps lift-off at each of the next two FOMC policy meetings in March and May. The bets were reaffirmed by the US CPI and PPI data last week, which showed that inflation isn't coming down quite as fast as hoped. In contrast, the softer-than-expected UK consumer inflation figures fueled speculations that the Bank of England's (BoE) current rate-hiking cycle might be nearing the end.

The divergent Fed-BoE policy expectations also contribute to capping the upside for the GBP/USD pair.

The downside, however, seems cushioned, at least for the time being, amid relatively thin trading volumes in the wake of the President Day's holiday in the US.

Traders also seem reluctant and might refrain from placing aggressive bets ahead of the latest FOMC monetary policy meeting minutes, scheduled for release on Wednesday.

Several Fed officials, including Chairman Jerome Powell, recently stressed the need to keep raising rates gradually to fully gain control of inflation. Hence, investors will look for fresh cues about the Fed's policy tightening path, which will play a key role in influencing the USD price dynamics and help determine the near-term trajectory for the GBP/USD pair.

Technical levels to watch