GBP/USD trades with modest intraday gains, remains below mid-1.2600s

• GBP/USD ticks higher amid a modest USD weakness, though the upside remains capped.
• The Fed rate cut uncertainty and a positive risk tone keep the USD bulls on the defensive.
• Bets that the BoE will start cutting rates in the next few months cap the upside for the GBP.

The GBP/USD pair attracts some buying during the Asian session on Monday, albeit lacks follow-through and remains below mid-1.2600s, or the top end of a multi-day-old trading range.

The US Dollar (USD) continues with its struggle to gain any meaningful traction in the wake of the uncertainty over the Federal Reserve’s (Fed) rate-cut path. Apart from this, the underlying bullish sentiment surrounding the global equity markets is seen as another factor undermining the safe-haven Greenback and lending some support to the GBP/USD pair.

The markets, meanwhile, have been scaling back their expectations for early and steep rate cuts by the Fed in 2024 in the wake of a resilient US economy and hawkish comments by FOMC officials. Dallas Fed Bank President Lorie Logan said on Friday that there is no urgency to cut rates and that she wants further evidence on inflation to confirm the progress is durable.

Adding to this, Atlanta Fed President Raphael Bostic noted that inflation has been too high for too long, and there is still a way to go and that the US is on a path to pre-pandemic economic activity. This remains supportive of elevated US Treasury bond yields, which act as a tailwind for the buck and keep a lid on any meaningful upside for the GBP/USD pair.

Furthermore, growing acceptance that the Bank of England (BoE) could lower borrowing costs in the next few months further holds back traders from placing aggressive bullish bets around the British Pound (GBP). In fact, the current market pricing suggests that the UK central bank could deliver four 25 basis points (bps) interest rate cuts by the end of the year.

This, in turn, makes it prudent to wait for strong follow-through buying before positioning for a further near-term appreciating move for the GBP/USD pair. Traders might also prefer to wait on the sidelines ahead of this week's important macro releases – including the latest consumer inflation figures from the US and the UK on Tuesday and Wednesday, respectively.

Technical levels to watch