GBP/USD steadily climbs back closer to 1.2700 mark amid subdued USD price action

• GBP/USD regains positive traction and stalls its retracement slide from a multi-month peak.
• The BoE’s hawkish outlook continues to underpin the GBP and acts as a tailwind for the pair.
• The USD fails to build on Friday’s bounce from over a four-month low and also lends support.

The GBP/USD pair attracts some dip-buying around the 1.2655 area during the Asian session on Monday and for now, seems to have stalled its retracement slide from the vicinity of the 1.2800 mark, or a near four-month peak touched last week. Spot prices climb to a fresh daily high, around the 1.2685 region in the last hour and draw support from a combination of factors.

The British Pound (GBP) is underpinned by the Bank of England’s (BoE) hawkish stance, saying that monetary policy is likely to need to be restrictive for an extended period of time as key indicators of UK inflation remain elevated. Adding to this, the flash UK PMIs released on Friday indicated growth picking up some momentum at the end of the year, which should allow the economy to dodge recession during the fourth quarter as a whole. This, along with subdued US Dollar (USD) price action, acts as a tailwind for the GBP/USD pair.

Meanwhile, the Federal Reserve (Fed) last week signalled an end to its monetary policy tightening cycle and pencilled in at least three 25 basis points (bps) rate cuts in 2024. That said, a duo of influential Fed officials pushed back against expectations for early interest rate cuts and prompted an intraday USD short-covering rally on Friday, from its lowest level since July 31. The recovery momentum, however, lacks follow-through in the wake of the Fed’s dovish shift and the risk-on mood, which tends to undermine the safe-haven buck.

Moving ahead, there isn’t any relevant market-moving economic data due for release from the UK or the US on Monday, leaving the GBP/USD pair at the mercy of the USD price dynamics. Nevertheless, the aforementioned supportive fundamental backdrop suggests that the path of least resistance for spot prices is to the upside. Some follow-through buying beyond the 1.2700 mark will reaffirm the positive outlook and allow bullish traders to retest the multi-month peak touched in the aftermath of the BoE policy decision last Thursday.

Technical levels to watch