The GBP/USD pair held steady above 1.2550 on Monday, supported by a weaker U.S. dollar following disappointing U.S. retail sales data. The soft economic figures reinforced expectations that the Federal Reserve could move toward rate cuts, pressuring the greenback and giving the British pound an edge.
U.S. retail sales came in below forecasts, signaling slower consumer spending and raising concerns about economic momentum. The data fueled speculation that the Fed may ease monetary policy sooner than expected, leading to a pullback in Treasury yields and weakening demand for the dollar. Meanwhile, investors are closely watching upcoming U.S. inflation data, which could further shape market expectations for the Fed’s next move.
On the UK side, the Bank of England (BoE) remains in focus as policymakers weigh inflation risks against signs of a slowing economy. While BoE officials have signaled a cautious stance on rate cuts, recent data suggests the central bank may not be in a hurry to ease policy. The contrast between Fed rate cut expectations and BoE’s cautious outlook has provided some support for GBP.
From a technical perspective, GBP/USD is holding above key support at 1.2550, with resistance near 1.2600 acting as the next upside hurdle. A breakout above this level could open the door for further gains, while a dip below support may lead to a retest of the 1.2500 region. Traders remain cautious, however, as upcoming data releases could shift sentiment quickly.
In addition to economic data, the broader risk sentiment in financial markets is also influencing the pound’s movements. Equity markets have shown resilience despite uncertainty over Fed policy, which has helped risk-sensitive currencies like the British pound. However, any signs of economic slowdown in either the U.S. or UK could quickly reverse this trend, prompting investors to seek safety in the U.S. dollar.
Geopolitical developments and trade flows also remain key factors affecting GBP/USD. Rising tensions in global markets or disruptions in supply chains could lead to heightened volatility, especially if they impact energy prices and inflation expectations. Traders are also keeping an eye on UK domestic politics, as any unexpected shifts in government policy could add further uncertainty to the pound’s outlook.
Looking ahead, investors will closely monitor U.S. inflation data and Fed speeches for further signals on monetary policy. If inflation shows signs of cooling, it could reinforce expectations of Fed rate cuts and push GBP/USD higher. Conversely, any surprises indicating persistent inflation could revive dollar demand, capping the pair’s gains. For now, the pound remains supported by a weaker U.S. dollar and shifting Fed expectations, but volatility is likely as the market reacts to upcoming economic reports.
