GBP/USD ticks higher on softer USD; lacks bullish conviction and remains below 1.2200
GBP/USD ticks higher on Monday amid the emergence of some US Dollar selling.
Expectations that the Fed might stick to its hawkish stance should limit USD losses.
Bets that the BoE will cut rates in February might contribute to capping the pair.
The GBP/USD pair kicks off the new week on a slightly positive note and reverses a part of Friday's decline, though the uptick lacks follow-through or bullish conviction. Spot prices currently trade around the 1.2180 region, up less than 0.10% for the day, and remain close to the lowest level since November 2023 touched last week.
The US Dollar (USD) struggles to capitalize on Friday's positive move amid expectations that the Federal Reserve (Fed) may not exclude the possibility of rate cuts by the end of this year. Apart from this, a generally positive risk tone undermines demand for the safe-haven Greenback, which is seen lending some support to the GBP/USD pair. That said, a combination of factors could act as a headwind for spot prices, warranting some caution for bullish traders.
Investors seem convinced that US President-elect Donald Trump’s protectionist policies could boost inflation and force the Fed to adopt a more hawkish stance. Moreover, the Fed is expected to pause its rate-cutting cycle later this month, which should limit the USD losses. Adding to this, the risk of stagflation, along with worries about the UK's fiscal health, might hold back traders from placing bullish bets around the British Pound (GBP) and cap the GBP/USD pair.
Furthermore, the mixed UK macro data released last week lifted bets for a 25-basis-points rate cut by the Bank of England (BoE) at the next policy meeting on February 6. Hence, it is prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has formed a near-term bottom and positioning for any meaningful appreciating move in the absence of any relevant market-moving economic data on Monday.
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