GBP/USD holds below 1.2550 amid firmer US Dollar

• GBP/USD trades in negative territory near 1.2535 on a stronger USD. 
• US ISM Services PMI came in at 53.4 in January vs. 50.5 prior. 
• BoE’s Pill said rates will come down this year, but only with progress on inflation.

The GBP/USD pair drops to the multi-week low of 1.2518 and rebounds to 1.2535 during the early Asian session on Tuesday. The expectations of an early Federal Reserve (Fed) interest rate cut fade, and this lifts the US Dollar (USD) across the board. Meanwhile, the US Dollar Index (DXY) holds above 104.40 after retracing from a yearly high of 104.60. 

The Institute for Supply Management (ISM) reported on Monday that the US ISM Services PMI climbed to 53.4 in January from 50.5 in December. The Services PMI data, along with the labor market data, suggested that the fourth quarter's economic growth momentum carried over into the new year and reduced the possibility of an interest rate cut in March.

The Bank of England (BoE) Chief Economist Huw Pill stated on Monday that interest rates could drop this year as a reward to the economy for bringing inflation down. Pill added that monetary policy is now on a different path than it was over the course of last year, and rates will only decline as long as progress continues with inflation.

Later on Monday, the UK BRC Retail Sales and S&P Global/CIPS Construction PMIs for January will be due. In the absence of top-tier economic data released from the UK and US, risk sentiment will likely play a pivotal role for GBP/USD.