GBP/USD Price Analysis: Bounces back above 1.2200, keeps the red amid modest USD strength

• GBP/USD edges lower on Tuesday and erodes a part of the overnight gains to a one-month high.
• Jitters ahead of Pelosi's Taiwan visit boost the safe-haven USD and exert downward pressure.
• The formation of an ascending channel supports prospects for the emergence of some dip-buying.

The GBP/USD pair witnessed some selling on Tuesday and extends the overnight modest pullback from the vicinity of the 1.2300 mark, or over a one-month high. Spot prices, however, show some resilience below the 1.2200 mark and have now managed to rebound a few pips from the daily low.

The US dollar draws some haven flows amid mounting diplomatic tensions over US House Speaker Nancy Pelosi's Taiwan visit and stages a goodish bounce from a fresh multi-week low. This turns out to be a key factor that exerted some downward pressure on the GBP/USD pair through the first half of the European session.

The anti-risk flow, along with expectations that the Fed would not increase rates as aggressively as previously estimated, continues to drag the US Treasury bond yields lower. This is acting as a headwind for the buck. Apart from this, rising bets for a 50 bps rate hike by the Bank of England help limit losses for the GBP/USD pair.

Looking at the broader picture, the recent recovery from the lowest level since March 2020 witnessed over the past two-and-half week or so has been along an upward sloping trend channel. This points to a well-established short-term bullish trend and supports prospects for the emergence of some dip-buying at lower levels.

Hence, any subsequent decline below the daily swing low, around the 1.2185 region, is likely to stall near the lower end of the ascending channel. The said support is currently pegged near the 1.2100 mark and is closely followed by the 200-period SMA on the 4-hour chart, around the 1.2080 region, which should act as a pivotal point.

On the flip side, the 1.2245 area could provide some hurdle ahead of the 1.2280 supply zone. Sustained strength beyond should allow the GBP/USD pair to surpass the 1.2300 mark and test the ascending channel resistance, currently around the 1.2315 region. Some follow-through buying would be seen as a fresh trigger for bulls.

GBP/USD 4-hour chart

Key levels to watch