The GBP/USD pair starts the week on a slightly positive note, partially reversing Friday’s losses. However, the uptick lacks momentum, with the pair trading around 1.2180, marking a modest gain of less than 0.10%. It remains near the lowest level since November 2023, touched last week.
US Dollar Weakens on Fed Rate Cut Speculation
The US Dollar (USD) faces challenges in capitalizing on Friday’s gains, as expectations grow that the Federal Reserve (Fed) may not rule out potential rate cuts by the end of this year. A generally positive risk tone also reduces demand for the safe-haven Greenback, offering some support to the GBP/USD pair. However, multiple factors continue to act as headwinds for the pair, tempering bullish sentiment.
Trump’s Protectionist Policies and Fed’s Stance Add Uncertainty
Investors remain cautious, believing that US President-elect Donald Trump’s protectionist policies could increase inflation, prompting the Fed to adopt a more hawkish approach. Additionally, expectations that the Fed will pause its rate-cut cycle later this month are likely to limit further losses for the USD.
UK Economic Concerns Weigh on GBP
Concerns about the UK’s fiscal health, alongside the risk of stagflation, are keeping traders cautious about placing bullish bets on the British Pound (GBP). Furthermore, mixed UK macroeconomic data released last week increased the likelihood of a 25-basis-point rate cut by the Bank of England (BoE) at its upcoming meeting on February 6.
Market Awaiting Clearer Signals
With limited market-moving economic data on Monday, investors are advised to wait for stronger follow-through buying before confirming that GBP/USD has reached a near-term bottom and positioning for any meaningful upside.
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