The GBP/USD pair weakens as the US dollar strengthens near a two-year high, driven by the Fed's hawkish stance, trade war concerns, and geopolitical risks.
GBP/USD starts the new week modestly as USD hovers near a two-year high. The Fed's hawkish stance, trader war anxieties, and geopolitical risks bolster the safe-haven dollar. The fundamental context calls for caution before anticipating any significant recovery. The GBP/USD pair struggles to build on Friday's modest gains and fluctuates within a range, above the 1.2400 level at the start of a new week.
Spot prices remain near the lowest point seen since April 2024, reached last week, and appear vulnerable to extending a three-month downtrend driven by a robust US Dollar (USD). The USD Index (DXY), which measures the Greenback against a basket of currencies, holds firm near a two-year high fueled by optimism surrounding US President-elect Donald Trump's expansionary policies and the Federal Reserve's (Fed) hawkish outlook. Compounding these concerns are Trump's sweeping tariffs, coupled with geopolitical risks arising from the Russia-Ukraine war and escalating tensions in the Middle East, which underpin the safe-haven dollar and act as a headwind for the GBP/USD pair. Meanwhile, sentiment surrounding the British Pound (GBP) remains subdued amid a string of weak UK data recently and uncertainties regarding the newly elected Labour government's fiscal strategy. Additionally, the Bank of England's (BoE) relatively dovish stance and the split vote decision to keep interest rates unchanged in December may continue to pressure the GBP. This reinforces the negative outlook for the GBP/USD pair as traders await the final UK Services PMI for fresh direction. Later during the North American session, US macroeconomic data – final Services PMI and Factory Orders – might influence the USD and create short-term trading opportunities. However, the underlying fundamental landscape appears to favor USD bulls, suggesting that the most likely course for the GBP/USD pair is downwards
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