- GBP/USD moves higher on slight USD weakness, although gains remain limited.
- Fed rate cut uncertainty and positive risk tone keep dollar bulls on the defensive.
- Bets that the BoE will start cutting rates in the next few months are limiting GBP gains.
GBP/USD pair it attracts some buying during the Asian session on Monday, although it lacks a continuation and remains below the 1.2600 median, or the upper end of the multi-day trading range.
The American dollar (USD) continues to struggle to gain any meaningful traction amid uncertainty over how the Federal Reserve (Fed) will cut rates. In addition, the underlying bullish sentiment around global equity markets is seen as another factor undermining the safe-haven Greenback and providing some support to the GBP/USD pair.
Meanwhile, markets have scaled back their expectations for an early and sharp rate cut by the Fed in 2024 on the back of a resilient US economy and hawkish comments from FOMC officials. Dallas Fed President Lorie Logan said on Friday there was no urgency to cut rates and that she wanted more evidence on inflation to confirm progress was sustainable.
In addition, Atlanta Fed President Raphael Bostic he noted that inflation has been too high for too long and still has a way to go and that the US is on its way to pre-pandemic economic activity. This continues to support elevated US Treasury yields, acting as a tailwind for the dollar and keeping any meaningful upside in the GBP/USD under wraps.
In addition, there is growing agreement that Bank of England (BoE) could cut borrowing costs over the next few months, further preventing traders from placing aggressive bullish bets around the British pound (GBP). In fact, current market prices suggest that the UK central bank could cut interest rates by four 25 basis points (bps) by the end of the year.
This in turn makes it prudent to wait for a strong subsequent buy before positioning for another short-term bullish move for the GBP/USD pair. Traders may also prefer to wait on the sidelines ahead of this week's key macroeconomic news – including the latest US and UK consumer inflation data on Tuesday and Wednesday.