- GBP/USD is struggling to capitalize on Friday’s rebound from its multi-month low.
- The Fed’s hawkish tilt, elevated US bond yields and geopolitics underpin the dollar.
- BoE’s dovish stance continues to keep GBP bulls from making recent bets.
GBP/USD starts the recent week on a subdued note and hovers in a tight trading range above the mid-1.2500 level during the Asian session. Moreover, the fundamental background requires caution before taking a position to extend Friday’s rebound from the 1.2475 area, the lowest level since May.
The US dollar (USD) rebounded from a two-year high on Friday after the personal consumption price index (PCE) report for November pointed to signs of weakening inflation and continued challenges for the economy. This keeps the USD bulls on the defensive and provides some support for the GBP/USD pair. That said, the Federal Reserve’s (Fed) hawkish change could continue to act as a tailwind for safe-haven investors.
As widely expected, the Fed cut borrowing costs by 25 basis points (bps) last Wednesday, although it signaled a slower pace of rate cuts in 2025. This continues to support elevated U.S. Treasury yields, which, along with geopolitical risks arising from a prolonged the Russian-Ukrainian war and tensions in the Middle East favor the emergence of a tendency to buy in USD and may result in a limitation of the GBP/USD pair.
Additionally, the Bank of England’s (BoE) decision in a split vote last week to leave interest rates unchanged and the dovish outlook may deter traders from placing aggressive bullish bets around the British pound (GBP). In fact, three BoE MPC members voted to cut interest rates, while policymakers lowered their economic forecasts for the fourth quarter of 2024. This could further aid keep GBP/USD under control.
Market participants are now looking to the BoE’s quarterly bulletin for a boost ahead of the US consumer confidence index released later in the early North American session. Nevertheless, the fundamentals mentioned above make it prudent to wait for further sturdy buying before confirming that GBP/USD has bottomed in the near future.
