GBP/USD clings to modest recovery gains, around mid-1.3400s post-UK GDP

• The USD consolidated its recent gains and allowed GBP/USD to gain some traction on Thursday.
• A generally positive risk tone, retreating US bond yields held the USD bulls from placing fresh bets.
• An upward revision of the UK GDP growth figure did little to provide any impetus to the sterling.

The GBP/USD pair held on to its modest intraday gains near mid-1.3400s and had a rather muted reaction to the better-than-expected UK GDP report.

The pair managed to regain some positive traction during the Asian session on Thursday and recovered a part of the overnight losses to fresh YTD lows. Signs of stability in the equity markets, along with a modest pullback in the US Treasury bond yields kept the US dollar bulls on the defensive. This, in turn, was seen as a key factor that extended some support to the GBP/USD pair.

The British pound was further underpinned by an upward revision of the UK GDP print, showing that the economy expanded by 5.5% during the second quarter as against 4.8% estimated. That said, the increasing fuel crisis in the United Kingdom – due to the post-Brexit shortage of truck drivers – held traders from placing aggressive bullish bets and capped any meaningful upside for the GBP/USD pair.

On the other hand, expectations that the Fed would begin rolling back its pandemic-era stimulus as soon as November and raise interest rates in 2022 acted as a tailwind for the greenback. This, in turn, suggests that the attempted recovery move might still be seen as an opportunity to initiate fresh bearish positions around the GBP/USD pair and runs the risk of fizzling out quickly.

Market participants now look forward to the US economic docket, featuring the release of the final Q2 GDP print and the usual Weekly Initial Jobless Claims. Apart from this, Fed Chair Jerome Powell's testimony before the Committee on Financial Service and the US bond yields will influence the USD. This should allow traders to grab some short-term opportunities around the GBP/USD pair.

Technical levels to watch