GBP/USD lost its traction and retreated below 1.2700 after edging higher in the early European session on Monday. Ahead of the Fed and the BoE’s monetary policy announcements later in the week, the cautious market mood limits the pair’s upside.
GBP/USD continues to move up and down in a narrow band at around 1.2700 early Monday after closing the previous week virtually unchanged.
The near-term technical outlook fails to provide a directional clue but the Federal Reserve’s and the Bank of England’s (BoE) policy announcements later this week could help the pair break out of its range.
The cautious market mood at the beginning of the week helps the US Dollar (USD) stay resilient against its rivals and makes it difficult for GBP/USD to gather bullish momentum. Investors grow increasingly worried about the potential negative economic impact of escalating geopolitical tensions in the Middle East.
Over the weekend, UK navy ship HMS Diamond reportedly shot down a Houthi drone over the Red Sea. Meanwhile, three US troops were killed and dozens were injured on Sunday after a drone strike on a US base near Jordan’s border with Syria. In case safe-haven flows dominate the financial markets in the second half of the day, GBP/USD could stay under pressure.
Early Monday, a survey conducted by US bank Citi and polling firm YouGov showed that the UK public inflation expectations for the twelve months ahead fell to 3.9% and 3.5% in November and December, respectively, from 4.2% in October. Long-term inflation expectations edged lower to 3.4%. This headline failed to trigger a noticeable market reaction.