The GBP/USD pair starts the week on a subdued note, oscillating within a narrow range below the mid-1.2700s during the Asian session. Despite trading near a three-week high above the 1.2800 mark reached on Friday, the outlook remains cautious, with fundamental factors weighing on the pair’s bullish momentum.
The release of the US Nonfarm Payrolls (NFP) report on Friday revealed a slight increase in the Unemployment Rate for November, reinforcing expectations that the Federal Reserve (Fed) will likely lower interest rates in December. However, initial market optimism faded quickly as traders anticipated that the Fed may slow or pause its rate-cutting cycle starting in January. This uncertainty helped the US Dollar (USD) hold above its one-month low, posing a headwind for GBP/USD.
Geopolitical risks, including persistent tensions and concerns over China’s economic slowdown, further bolster demand for the safe-haven Greenback. Additionally, expectations of US President-elect Donald Trump’s trade tariffs on key global partners, including the UK, continue to undermine investor confidence in the British Pound (GBP). The GBP struggles to attract buyers amid the dovish stance of Bank of England (BoE) Governor Andrew Bailey, who signaled the possibility of four rate cuts in 2025. This outlook has capped the upside potential for GBP/USD, leaving the pair vulnerable to further downside pressure.
Focus on US Inflation Data and BoE Speech for Market Direction
Investors are now turning their attention to upcoming US economic data, with the Consumer Price Index (CPI) report scheduled for release on Wednesday. The CPI data will be crucial for assessing the Fed’s path on interest rates, and it could provide important clues about future USD demand. A higher-than-expected CPI could strengthen the case for further rate cuts by the Fed, while a softer reading might signal a more cautious approach, influencing market sentiment and GBP/USD dynamics.
In the UK, BoE Deputy Governor David Ramsden’s speech later on Monday could impact GBP price action, with traders likely to seek short-term trading opportunities based on any new insights into the central bank‘s policy outlook. With these key events on the horizon, GBP/USD is likely to remain range-bound in the near term, with a clear directional move dependent on the inflation data and central bank commentary later in the week.
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