Pound Sterling gains traction against softer USD; eyes US CPI report for fresh impetus

• GBP/USD regains positive traction following the overnight pullback from the 1.3500 neighborhood.
• A positive risk tone and easing inflationary concerns weigh on the USD, lending support to the pair.
• Persistent geopolitical uncertainties could limit deeper USD losses ahead of the key US CPI report.

The GBP/USD pair attracts fresh buyers during the Asian session on Wednesday and stalls the previous day's retracement slide from the 1.3485 region, or over a one-week high. Spot prices currently trade around the 1.3430 region, up 0.10% for the day.

Crude Oil prices retreated sharply following a massive rally early this week and eased inflationary concerns. This, along with a generally positive tone around the equity markets, weighs on the safe-haven US Dollar (USD), which, in turn, is seen as a key factor acting as a tailwind for the GBP/USD pair.

The British Pound (GBP), on the other hand, benefits from the repricing of the Bank of England (BoE) interest rate expectations. In fact, bets for three rate cuts by the BoE have now been replaced with a roughly 70% probability of a rate hike by year-end. This offers additional support to the GBP/USD pair.

However, a further escalation of geopolitical tensions in the Middle East and economic consequences of the closure of the Strait of Hormuz could underpin the USD's global reserve currency status. This might hold back traders from placing aggressive bullish bets around the GBP/USD pair and cap the upside.

Despite US President Donald Trump's remarks that the war could be over soon, the fighting showed no signs of slowing down. The Israel Defense Forces said that it had unleashed a new wave of strikes on Iran, and launched more missiles at Lebanon, targeting infrastructure that belongs to Iran-backed Hezbollah.

This might keep a lid on any optimism in the markets and help limit deeper USD losses. Traders might also opt to wait for the release of the latest US consumer inflation figures before placing fresh directional bets. Nevertheless, the broader fundamental backdrop seems tilted in favor of the GBP/USD bulls.