The GBP/USD has attracted the attention of buyers following the weakening of the US dollar.
However, traders' bets on the imminent start of the Fed's tightening policy may limit the dollar's decline and thus limit further gains in the GBP/USD pair., reported FX street.
At the time of writing, the GBP/USD is trading at 1.2386, up +0.13% for the day.
The GBP/USD has retreated from the 1.2365-1.2360 area, which was the lowest level since November 2023. The pair appear to have broken a two-day losing streak. The pair's recovery was driven by a moderate decline in the US dollar and a rise in spot prices closer to the 1.2400 level in the last hour.
At the same time, several factors, including geopolitical ones, are limiting the pair's further gains.
Iran did not respond to Israel's missile strike on Friday, which caused the markets to ease fears of a further escalation of tensions in the Middle East. This in turn boosted investor confidence, reducing safe-haven interest in the dollar and strengthening the position for the GBP/USD pair.
Meanwhile, expectations that the Federal Reserve (Fed) has decided to keep interest rates high in light of recent economic data and stable US inflation are limiting the dollar's decline and suspending the GBP/USD's rise.
Investors have pushed back their expectations for when the Fed will start cutting rates from June to September and have also lowered their bets on the number of rate cuts this year. "Hawkish" comments from Fed officials continue to support rising US Treasury yields and act as a tailwind for the dollar.
Expectations for more aggressive policy easing from the Bank of England (BoE) may also help curb further GBP/USD gains.
There is no major economic data due out of either the UK or the US on Monday, so spot prices will be influenced by US dollar price movements.
This week, the focus will be on important macroeconomic data from the US: the preliminary first quarter GDP report and the Personal Consumption Expenditure (PCE) price index on Thursday and Friday.
The movement of the GBP/USD pair will also be influenced by the short-term UK/US PMI data.
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