GBP/USD is flat in Tokyo following an impressive rally on Thursday in a continuation of the short squeeze. The bulls reached the prior resistance around 1.2500 and sit there currently waiting for a fresh impetus sat not far off a 10-month peak.

financial market jitters have caused volatility this week as investors vacillated over whether U.S. banking issues and a standoff over the debt ceiling were overall supportive of the US Dollar. On Thursday, investors moved away from the Greenback ahead of the release of the first estimate of Q1 Gross Domestic Product and weekly initial jobless claims.

The data showed that while the US economy is forecast to have risen by 2% in Q1 after a 2.6% gain in the previous quarter, with personal consumption spending up 4.2% after a 1% gain to offset softer readings for other components, inflation remains sticky. The GDP Price Index for the US increased at an annualized rate of 4.0% in Q1, indicating inflation is stronger than initially expected. The core inflation measure lifted 4.9%.

Eyes on Fed May meeting

Meanwhile, ahead of next week's much anticipated Federal Open Market Committee meeting, Morgan Stanley (MS) published their views on what to expect.

MS said they expect the Fed to deliver a 25 basis points (bps) hike and communicate a conditional pause. The research also states that their rates strategists see scope for markets to extract a dovish message from the Fed at the upcoming FOMC meeting. That said, the MS highlights news about recent banking system stress as a challenge for the US central bank hawks. Still, the reports show that the investment bank believes a robust job market and high inflation support the May hike thesis. MS believes the May meeting "is likely to represent a turning point in the monetary policy tightening cycle."