The GBP/USD pair starts the new week on a subdued note and moves within a narrow trading range above the mid-1.2500s during the Asian session. It struggles to build on Friday’s bounce from a multi-month trough at the 1.2475 area, which was the lowest level since May.
Influence of the US Dollar
The US Dollar (USD) pulled back from a two-year high on Friday after the Personal Consumption Expenditure (PCE) Price Index report for November showed signs of inflation moderation and lingering economic challenges. However, the Federal Reserve’s (Fed) hawkish shift continues to act as a boost for the USD as a safe-haven currency. The Fed lowered borrowing costs by 25 basis points (bps) last Wednesday but signaled a slower pace of rate cuts in 2025, which supports elevated US Treasury bond yields. Along with geopolitical risks from the Russia-Ukraine war and tensions in the Middle East, this supports the possibility of USD dip-buying and may cap the GBP/USD pair.
Impact of the Bank of England
The Bank of England’s (BoE) split vote decision to leave interest rates unchanged last week and its dovish outlook hold back traders from making aggressive bullish bets on the British Pound (GBP). Three members of the BoE’s MPC voted to reduce rates, and policymakers also downgraded their economic forecast for the fourth quarter of 2024. This further contributes to limiting the upward movement of the GBP/USD pair.
Market Expectations
Market participants are now looking to the BoE’s Quarterly Bulletin for some momentum before the Conference Board’s US Consumer Confidence Index is released later during the early North American session. Given the fundamental backdrop described above, it’s wise to wait for strong follow-through buying before concluding that the GBP/USD pair has bottomed out in the near term.
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