The GBP/USD pair witnesses some buying interest around the 1.2415 level on Monday, trading with a slight positive bias during the first half of the European session.
However, spot prices remain close to a nearly one-month low reached last week, currently hovering around the 1.2445-1.2450 range, with a marginal gain of less than 0.10% for the day.
The US Dollar (USD) continues to decline for the second consecutive day, stepping back from a two-month high touched on Friday. This downward movement proves to be a crucial factor in supporting the GBP/USD pair, allowing it to defend the 50-day Simple Moving Average (SMA).
The unexpected breakdown in US debt ceiling negotiations raises concerns about the likelihood of reaching a deal soon and fuels worries of an unprecedented American debt default.
Additionally, Federal Reserve (Fed) Chair Jerome Powell’s less hawkish comments contribute to the defensive stance of USD bulls throughout Monday’s trading session.
However, the upside potential for the GBP/USD pair remains limited due to expectations of fewer interest rate hikes by the Bank of England (BoE) in the coming months to combat inflation.
These expectations were reinforced by underwhelming UK jobs data released on Tuesday and comments made by BoE Governor Andrew Bailey last week, suggesting signs of cooling inflation and a slight loosening in the labor market.
Consequently, traders are hesitant to place aggressive bullish bets on the major currency pair, serving as a hindrance.
Moreover, concerns about global economic growth overshadow the optimism surrounding a potential improvement in US-China relations, providing support to the US Dollar’s status as a relative safe-haven currency.
This acts as an additional factor limiting the upside for the GBP/USD pair, especially in the absence of any significant market-moving economic data from either the UK or the US.
Traders also adopt a cautious approach, awaiting the outcome of a meeting between President Joe Biden and House Republican Speaker Kevin McCarthy, which aims to address the issue of the debt ceiling.
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