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GBP/USD Price Analysis: Bulls approach 1.2600.


GBP/USD staged a solid bounce from a nearly three-week low touched earlier on Tuesday.
Retreating US bond yields, a positive risk tone undermined the USD and extended support.
The UK political uncertainty held back bulls from placing fresh bets and capped the upside.
The GBP/USD pair witnessed a dramatic intraday turnaround and rallied around 130 pips from a nearly three-week low touched on Tuesday. Investors turned optimistic amid expectations that price pressures may start to ease, which could slow the central bank's hiking plans. This led to a solid recovery in the US equity markets and triggered a corrective pullback in the US Treasury bond yields, which failed to assist the safe-haven US dollar to preserve its early gains. The emergence of some USD selling turned out to be a key factor that prompted short-covering around the pair and pushed spot prices to the 1.2600 neighbourhood.

The momentum, however, lacked follow-through buying and ran out of steam during the Asian session on Wednesday in the wake of the UK political turmoil. UK Prime Minister Boris Johnson survived the no-confidence vote on Monday, albeit at a much smaller margin than expected. Given that many MPs from within the Conservative Party voted against him, the development has raised uncertainty over Johnson’s future as the UK Prime Minister. This could make it difficult for the British pound to attract any meaningful buying amid the gloomy UK economic outlook. This warrants caution before placing aggressive bullish bets around the GBP/USD pair.
Investors might also prefer to wait on the sidelines ahead of the US consumer inflation figures, due for release on Friday. The latest US CPI report will play a key role in influencing the Fed's policy tightening path and the USD, which, in turn, should provide a fresh directional impetus to the GBP/USD pair. In the meantime, traders on Wednesday will take cues from the final UK Construction PMI amid absent top-tier economic data from the US. Apart from this, the US bond yields, along with the broader market risk sentiment, would drive the USD price dynamics and allow traders to grab short-term opportunities around the major.