Ella 
GBP/USD pared Friday’s losses to trade higher around 1.2720 during Monday’s Asian session. The higher pound may be related to the general risk appetite in the market. However, the GBP/USD exchange rate faced challenges after poor UK retail sales figures for December were released on Friday.
Monthly data on retail sales for December, published by the Office for National Statistics (ONS), showed a fall of 3.2% compared with the previous reading of 1.4%. This beat expectations for a 0.5% decline. On an annual basis, the data showed a decline of 2.4%, contrasting with expectations for growth of 1.1%.
The sharp fall in consumer spending poses a potential obstacle for the Bank of England (BOE) to maintain tightening policy without risking an economic downturn. Policymakers at the Bank of England (BOE) will be watching further data to judge whether underlying inflation is expected to return to the 2.0% target in a timely and sustainable manner.
The U.S. dollar index (DXY) extended losses for a second straight session as U.S. 10-year currency yields weakened, likely on expectations that the U.S. Federal Reserve will cut policy rates in 2024 by more than globally any other major central bank. DXY is trading around 103.10, with the 10-year Treasury yield lower at 4.11%. At the time of writing, the 2-year bond yield is 4.39%.
However, given the greenback’s safe-haven status, it may find support amid concerns over maritime trade in the Red Sea. Both the United States and Britain seek to escalate their actions without triggering a wider conflict with Iran, which has led to more ships being diverted away from the Suez Canal and the Red Sea. Shipping vessels are carefully assessing the risks associated with sailing in the Red Sea as rising insurance costs become a significant factor.
This geopolitical threat has the potential to amplify risk aversion, prompting traders to seek safe-haven assets, which could increase demand for the U.S. dollar, putting downward pressure on the GBP/USD currency pair.
