The GBP/USD pair starts the new week on a softer note, hovering around the 1.2900 level, as mixed fundamental factors prevent any strong directional movement. Despite the initial weakness, the pair lacks follow-through selling and remains confined within a narrow range, reflecting a cautious market sentiment ahead of key economic data releases from both the UK and the US.
Strength in the US Dollar Amid Trump’s Economic Policies
The U.S. Dollar (USD) continues to hold its ground just below a four-month high, supported by growing expectations that US President-elect Donald Trump’s economic policies will stoke inflation and limit the Federal Reserve’s ability to ease policy aggressively. This has created an environment where the USD benefits, acting as a headwind for the GBP/USD pair. Traders are concerned that Trump’s fiscal agenda could drive up inflation and potentially compel the Fed to adopt a more restrictive policy stance, keeping USD supported in the near term.
BoE’s Hawkish Stance Helps Limit GBP/USD Decline
On the flip side, the Bank of England (BoE) has maintained a relatively hawkish stance, offering some support to the British Pound (GBP). The BoE has warned that the expansive Autumn Budget, introduced by Chancellor Rachel Reeves, could fuel inflation and, as a result, might delay the central bank‘s ability to cut interest rates in 2025. This more cautious approach toward rate cuts helps to limit downside pressure on the GBP, despite the stronger USD.
Additionally, a prevailing risk-on sentiment in the market has capped further gains for the safe-haven Greenback, contributing to some support for the GBP/USD pair. This suggests that while the USD remains strong, the risk appetite in the market prevents a deeper bearish move in GBP/USD, at least for now.
Investors Await Key Data and Speeches from Central Bank Leaders
Looking ahead, investors are adopting a cautious approach, waiting on key economic releases this week from both the UK and the US. These include UK jobs data on Tuesday, followed by US Consumer Price Index (CPI) figures and the Producer Price Index (PPI) on Wednesday and Thursday, respectively. Friday will see the release of UK preliminary Q3 GDP data and US Retail Sales figures, both of which will provide crucial insights into the economic health of these two major economies.
In addition to the economic data, speeches from key central bank officials will be closely watched. Fed Chair Jerome Powell and BoE Governor Andrew Bailey are both scheduled to speak on Friday, and their comments on inflation and monetary policy could provide further clarity on the direction of GBP/USD.
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