The GBP/USD pair continued to face modest downward pressure, trading below the key level of 1.2550 during the European session on Tuesday. The prevailing cautious market sentiment has bolstered the US Dollar (USD), preventing the pair from gaining momentum.
Investors are holding back ahead of the Bank of England‘s policy decision, scheduled for Thursday. Although GBP/USD briefly touched 1.2600, it retraced a significant portion of its gains during the late American session on Monday. The pair continued its downward trend in the early European session and was last seen trading just below 1.2550.
The USD struggled to find demand on Monday due to an improved risk appetite. However, comments from Federal Reserve officials during American trading hours helped Treasury bond yields recover, supporting the USD against its counterparts.
New York Fed President John Williams acknowledged the possibility of future rate cuts but expressed concerns about high monthly inflation figures. Richmond Fed President Thomas Barkin highlighted the robust labor market, suggesting that the Fed has time to monitor inflation trends before making any significant changes.
With no major economic releases or fundamental drivers, market sentiment is likely to drive GBP/USD’s movement in the latter half of the day. US stock index futures are trading mixed, and a positive opening on Wall Street could limit the USD’s gains and support GBP/USD.
On the geopolitical front, tensions remain high as the Israeli military has taken control of the Palestinian side of the Rafah crossing. Ceasefire talks are expected in Egypt later today, and any signs of easing tensions could restore risk appetite in the markets.
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