The GBP/USD pair attracts some dip-buying following an early dip to the 1.2440 area on Monday and builds on its steady ascent through the early part of the European session. Spot prices climb back closer to the 1.2500 psychological mark, with bulls now awaiting a sustained move and acceptance above the 100-day Simple Moving Average (SMA) before placing fresh bets.

The US Dollar (USD) selling bias remains unabated in the wake of dovish Federal Reserve (Fed) expectations, which, in turn, is seen pushing the GBP/USD pair higher for the second successive day. Investors now seem convinced that the US central bank is done with its policy tightening campaign and the bets were reaffirmed by the softer US CPI report released last week. Moreover, the markets are now pricing in the possibility that the Fed will start cutting rates as soon as March 2024.

A turnaround in expectations for the Fed's future policy action dragged the yield on the benchmark 10-year US government bond to a two-month low on Friday. Apart from this, the latest optimism over additional stimulus from China turns out to be another factor undermining the Greenback's safe-haven status and lending support to the GBP/USD pair. In fact, Chinese officials vowed to roll out more policy support for the country’s beleaguered real estate sector, boosting investors' confidence.

With the USD price dynamics turning out to be an exclusive driver of the GBP/USD pair's positive move, bulls seem unaffected by the fact that the markets anticipate the Bank of England (BoE) to begin cutting interest rates from their 15-year peak. In fact, interest rate futures have fully priced in a 25 bps BoE rate cut for August 2024 and a second rate cut in November 2024. Moreover, there is a greater than 50% chance that the BoE will start the policy easing cycle by June 2024.

In the absence of any relevant market-moving economic releases, either from the UK or the US, the mixed fundamental backdrop makes it prudent to wait for a breakout through the 100-day SMA before placing fresh bullish bets. Market participants now look forward to scheduled speeches by BoE Governor Andrew Bailey and Richmond Fed President Thomas Barkin to grab short-term trading opportunities later during the early North American session.

Technical levels to watch

GBP/USD

More By This Author: