GBP/USD Is Unchanged Around Mid-1.2400s, And Traders Appear Indifferent To Fed Uncertainty

The GBP/USD pair inched higher during Thursday's Asian session, but remained well below the weekly high, which was reached around the psychological 1.2500 level the previous day. The pair is currently trading just below the mid-1.2400s, up less than 0.10% on the day, and is supported by muted price action in the US Dollar (USD).

The USD Index (DXY), which measures the Greenback against a basket of currencies, continues to struggle to gain traction in light of the uncertainty surrounding the next Federal Reserve (Fed) policy move. Several Fed officials' dovish comments last week increased the likelihood of an imminent pause in the US central bank's policy tightening cycle. Several Fed officials' dovish comments last week increased the likelihood of an imminent pause in the US central bank's policy tightening cycle.

In turn, this should act as a tailwind for the USD as it continues to support elevated US Treasury bond yields. In actuality, the yield on the benchmark 10-year US government bond remains stable near the monthly peak reached on Wednesday, which may discourage traders from placing aggressive bearish wagers on the dollar and limit any significant gains for the GBP/USD pair. On account of expectations for additional policy tightening by the Bank of England (BoE), downside risks appear to be contained.

Investors now appear to be persuaded that the United Kingdom's central bank will be much more aggressive in its policy tightening to combat persistently high inflation, and they anticipate another 25-bps hike on June 22. In addition, market participants anticipate a 60% probability that rates will climax at 5.5% later this year. The bets were validated by the official consumer inflation data, which revealed that the headline UK CPI declined less than anticipated in April and a closely monitored measure of core price soared to a 31-year high.

On Thursday, the United Kingdom is not scheduled to disclose any market-moving economic data, leaving the GBP/USD pair at the mercy of USD price dynamics. Towards the end of the North American session, traders will look to the Weekly Initial Jobless Claims data for direction. The US bond yields will propel the USD and provide some impetus for the major. Nonetheless, the contradictory fundamental environment necessitates caution before placing fresh direction wagers.