• GBP/USD edges higher during the Asian session on Wednesday, albeit lacks follow-through.
• A modest USD downtick lends support; the worsening UK economic outlook caps the upside.
• Traders also seem reluctant ahead of the US CPI and UK macro data on Thursday and Friday.

The GBP/USD pair ticks higher during the Asian session on Wednesday and looks to build on the previous day's rebound from the 1.2685 area. Spot prices currently flirt with the 50-day Simple Moving Average (SMA), just above mid-1.2700s, and draw support from a mildly softer tone surrounding the US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, retreats further from a one-month peak retested on Tuesday. The overnight dovish remarks by Philadelphia Federal Reserve Bank President Patrick Harker, saying that they will probably start lowering the policy rate sometime next year, leads to a modest downtick in the US Treasury bond yields and undermines the buck. That said, growing acceptance that the US central bank will keep interest rates higher for longer in the wake of an extremely resilient economy should help limit any deeper USD losses.

The expectations were lifted by the closely-watched US monthly jobs report released last Friday, which pointed to the continued tightness in the labour market and raised the odds of a soft landing for the economy. Moreover, Fed Governor Michele Bowman said on Monday that additional interest rate hikes will likely be needed to lower inflation to the central bank's 2% target. This, along with a softer risk tone, supports prospects for the emergence of some buying around the safe-haven buck and might cap gains for the GBP/USD pair, against the backdrop of a bleak outlook for the UK economy.

In fact, the National Institute of Economic and Social Research (NIESR) said that there was a 60% risk of the government going to the polls during a recession. In its quarterly update, the NIESR added that it would take until the third quarter of 2024 for UK output to return to its pre-pandemic peak. This comes after a report from the British Retail Consortium showed on Tuesday that UK Retail Sales in July registered its weakest year-on-year growth since August 2022. Adding to this, the Bank of England's (BoE) less hawkish forward guidance should contribute to keeping a lid on the GBP/USD pair.

It is worth recalling that the BoE raised its key benchmark interest rate by 25 bps to a 15-year peak level of 5.25% last Thursday and signalled that the tightening cycle may be nearing an end. The UK central bank called its current monetary policy stance "restrictive" and forced investors to scale back expectations for the peak rate. This, in turn, warrants caution for aggressive bullish traders and before positioning for any further appreciating move for the GBP/USD pair. Traders might also prefer to wait on the sidelines ahead of this week's important macro releases from the US and the UK.

The latest US consumer inflation figures are due on Thursday, which will play a key role in influencing market expectations about the Fed's future rate-hike path and drive the USD demand in the near term. This will be followed by the UK macro data dump, including the Prelim GDP report on Friday, and help determine the next leg of a directional move for the GBP/USD pair.