Since the beginning of the week, the GBPUSD pair fluctuates in a small trading range beyond the mid-1.2500s. Furthermore, given the basic backdrop, it is prudent to exercise caution when positioning for a continuation of Friday's recovery from the 1.2475 region, which is the lowest point since May.
Why GBPUSD Is Pushing Lower
Following the release of the November Personal Consumption Expenditure (PCE) Price Index report, which indicated hints of inflation moderation and ongoing economic challenges, the US dollar (USD) declined from a two-year high. This provides some support for the GBP/USD pair and maintains the US dollar bulls on the defensive. The safe-haven buck may, however, continue to benefit from the US Federal Reserve's (Fed) dovish shift.
Last Wednesday, the Fed cut borrowing expenses by twenty-five basis points (bps), as was widely expected, but it also hinted at a slower rate-cutting pace in 2025. This continues to support high United States Treasury bond rates, which, in conjunction with geopolitical risks resulting from the protracted conflict between Russia and Ukraine and Middle East tensions, provides opportunities for certain US dollar dip-buying to emerge and could limit the GBP/USD pair.
BoE's Rate Decision Could Limit The Loss for GBP
In addition, a dovish perspective and the Bank of England's (BoE) divided vote selection to maintain its interest rate untouched last week may deter traders from making hostile favorable bets on the GBP. In reality, legislators reduced their financial projection for the final quarter of 2024, and all three members of the MPC of BoE voted to lower rates. This could help further control the GBP/USD exchange rate.
In the initial North American meeting, market participants now turn to the Quarterly Bulletin of the BoE for a little boost before the Conference Board's United States Consumer Sentiment Index. In the short term, however, it is wise to hold out for powerful follow-up buying before verifying that the British pound versus the US dollar has reached its lowest point due to the previously mentioned basic backdrop.
