Ella 
GBP/USD attracted some dip buying around 1.2655 on Monday in Asia and now appears to have broken off a pullback from around 1.2800, the near four-month high hit last week. GBP/USD recently climbed to a new daily high near 1.2685 and found support from a variety of factors.
Sterling (GBP) was supported by a hawkish stance from the Bank of England (BOE), which said monetary policy may need to remain restrictive for an extended period as key indicators of UK inflation remain elevated. In addition, the latest British Purchasing Managers Index (PMI) released last Friday showed that economic growth momentum picked up at the end of the year, which will enable the British economy as a whole to avoid recession in the fourth quarter. This, combined with a weak US dollar, is a “tailwind” for GBP/USD.
At the same time, the Federal Reserve (Fed) announced last week that it was ending its monetary policy tightening cycle and planned to cut interest rates at least three times in 2024, by 25 basis points (bps) each time. In other words, two influential Federal Reserve officials overturned expectations of an early interest rate cut and prompted the dollar to rebound from its lowest level since July 31 last Friday. However, under the influence of the Federal Reserve’s turn to dovishness and risk appetite, the dollar’s rebound momentum lacks follow-up momentum, which tends to suppress safe-haven currencies.
Looking ahead, with no data due from the UK or US on Monday, GBP/USD will be affected by USD volatility. That said, the supportive fundamental backdrop outlined above suggests that GBP/USD faces minimal resistance to the upside. Any follow-through buying in GBP/USD above the 1.2700 mark would again provide clarity on the outlook and could lead to a retest of the multi-month highs hit following last Thursday’s Bank of England policy decision.
