GBP/USD currency pair turned south and started to edge lower toward 1.2700 on Tuesday amid renewed US Dollar strength. The risk-averse market atmosphere ahead of this week’s key data releases makes it difficult for the pair to hold its ground.
After dipping below 1.2700, GBP/USD reversed its direction and closed the first trading day of the week in positive territory near 1.2750. The near-term technical outlook suggests that the pair could continue to edge higher once 1.2750 holds is confirmed as support.
Improving risk mood helped GBP/USD gain traction in Monday’s second half of the day. Growing optimism about the US government avoiding a shutdown after leaders of the House and Senate agreed on a $1.59 trillion spending deal late Sunday allowed US stocks to gather bullish momentum to start the week.
Meanwhile, US Treasury bond yields edged lower and the US Dollar (USD) struggled to attract buyers after the Federal Reserve Bank of New York reported that consumers’ year-ahead inflation expectation dropped to its lowest level since January 2021 at 3%.
Nevertheless, the CME Group FedWatch Tool shows that the probability of a 25 basis points Federal Reserve rate cut in March stays around 60%, down from nearly 80% early last week. Investors might want to wait to confirm a further decline in core inflation figures before betting on a policy pivot.
The US economic calendar will not offer any macroeconomic data releases that could noticeably drive the USD’s valuation. Hence, market participants are likely to remain focused on the risk perception. The UK’s FTSE 100 trades flat in the early session and US stock index futures are down between 0.3% and 0.4%.