GBP/USD edges lower to near 1.2710 after recent gains on improved risk appetite

• GBP/USD snaps its winning streak as the US Dollar improves.
• The decline in the 2-year US yield puts pressure on the US Dollar.
• US NFP rose to 216K from 173K prior. While ISM Services PMI eased to 50.6 from the prior figure of 52.7.

GBP/USD halts its winning streak that began on Wednesday, trading around 1.2710 during the Asian session on Monday. However, the Pound Sterling (GBP) received upward support against the US Dollar (USD) on improved risk appetite after the mixed economic data from the United States (US).

The US Dollar Index (DXY) maintains a sideways movement near 102.40 with a negative bias, potentially influenced by the decline in the short-term yield on the 2-year US Treasury bond. The yield on the 2-year bond trades lower at 4.38%, by the press time.

The US Dollar experienced a volatile session on Friday, marked by fluctuations between gains and losses, driven by mixed economic data. On the positive side, the US Bureau of Labor Statistics reported a favorable development in the job market, with Nonfarm Payrolls (NFP) rising to 216K in December, surpassing both the previous figure of 173K and the market expectation of 170K.

However, the Institute for Supply Management (ISM) revealed a slowdown in the services sector for December, as the Services Purchasing Managers Index (PMI) came in at 50.6, below the expected 52.6 and the prior figure of 52.7.

Federal Reserve Bank of Richmond President Thomas Barkin expressed his views on the US labor market, stating that it is exhibiting a steady softening pattern and is unlikely to reaccelerate at this juncture. Barkin emphasized that the reacceleration of the labor market seems improbable at this point.

Lorie Logan, the president of the Federal Reserve Bank of Dallas, has weighed in on the monetary policy landscape, stating that a rate hike should not be dismissed considering the recent easing in financial conditions. Her emphasis on avoiding premature easing to prevent a potential stimulation of demand reflects the delicate balance central banks strive to maintain.

The recent upbeat economic indicators from the United Kingdom (UK) likely contributed to the British Pound’s (GBP) positive performance. The UK Consumer Credit data revealed an improvement in individuals’ borrowing in November. Furthermore, the S&P Global/CIPS Composite PMI for December exhibited positive signs, with an increase in Services PMI.

The GBP might face selling pressure due to a pessimistic economic outlook. Investors appear to anticipate challenging decisions for Bank of England (BoE) policymakers, who find themselves in a difficult position between the looming recession risks in the UK economy and persistently high underlying inflation.

The call for swift action is intensifying, as corporate executives in the UK are urging the Bank of England (BoE) to lower interest rates promptly. This appeal is seen as a crucial measure to provide much-needed support to the struggling economy. The Institute of Directors Economic Confidence Index survey has added weight to these concerns, highlighting a continued decline in optimism among British directors regarding the country’s economic prospects.

Investors will observe the British Retail Consortium (BRC) Like-For-Like Retail Sales due on Tuesday and Manufacturing Production on Friday to gain fresh impetus on the UK’s economic landscape.