The GBP/USD currency pair began the week on a cautious note as the US Dollar (USD) approached a two-year high, reflecting a generally strong sentiment towards the greenback. Recent shifts in the Federal Reserve’s monetary policy, increased concerns over trade wars, and ongoing geopolitical tensions have bolstered the appeal of the USD as a safe haven. These factors suggest a cautious approach to any potential recovery in the GBP/USD pair.
Despite minor gains on Friday, the GBP/USD remains range-bound, hovering just above the 1.2400 level. The current prices are teetering near the lowest point since April 2024, and there are indications that the pair could continue its downward trajectory, influenced by the ongoing strength of the USD. The USD Index, which gauges the dollar’s performance against a selection of other currencies, is firmly positioned at a two-year peak, driven by the anticipated impact of newly elected policies and a hawkish stance from the Federal Reserve.
Concerns about sweeping tariffs and rising geopolitical risks, particularly relating to the ongoing conflict between Russia and Ukraine, have further supported the USD. This unfavorable climate poses challenges for the GBP/USD pair, as the British Pound (GBP) struggles with a backdrop of disappointing economic data and uncertainty regarding the fiscal strategy of the newly elected Labour government. Additionally, the Bank of England’s recent decision to maintain interest rates, resulting from a split vote, continues to weigh down the GBP.
Attention will soon shift to key economic indicators from the US, including the final Services PMI and Factory Orders, which could influence the dollar’s performance and create short-term trading opportunities. However, the prevailing conditions appear to favor the USD, suggesting a likely downward path for the GBP/USD pair unless a significant shift occurs following the upcoming critical economic releases, including the US Nonfarm Payrolls report due later in the week.
