GBP/USD recovers slightly from multi-month low, remains below mid-1.2600s

• GBP/USD ticks higher at the start of a new week amid a modest USD downtick.
• The Trump trade optimism should limit the USD downside and cap the major.
• The BoE uncertainty could also contribute to capping the upside for the GBP.

The GBP/USD pair kicks off the new week on a subdued note and consolidates in a range above the 1.2600 round-figure mark, or the lowest level since mid-May touched on Friday. Spot prices, for now, seem to have snapped a six-day losing streak amid a modest US Dollar (USD) downtick, though the fundamental backdrop supports prospects for an extension of the recent well-established downtrend.

The USD remains on the defensive below the year-to-date (YTD) top set last Thursday as bulls pause for a breather following the post-US election blowout rally. Any meaningful USD depreciation, however, seems elusive in the wake of expectations that US President-elect Donald Trump's policies will likely rekindle inflationary pressures and limit the scope for further rate cuts by the Federal Reserve (Fed). This has been a key factor behind the recent upsurge in the US Treasury bond yields, which suggests that the path of least resistance for the USD is to the upside. 

The British Pound (GBP), on the other hand, might struggle to lure buyers on the back of the uncertainty concerning the Bank of England's (BoE) path forward on interest rates. Data released last week showed that UK wage growth excluding bonuses cooled in September and the unemployment rate to 4.3% from 4.1%. Furthermore, the UK GDP unexpectedly contracted for the first time in five months in September, increasing expectations for BoE rate cuts. That said, BoE members do not see the central bank cutting interest rates at the December policy meeting.

This, in turn, makes it prudent to wait for strong follow-through buying to confirm that the GBP/USD pair has formed a near-term bottom. Bearish traders, however, might now wait for a sustained break and acceptance below the 1.2600 round figure before placing fresh bets amid absent relevant market-moving economic releases on Monday, either from the UK or the US.