Ella 
GBP/USD attracted some selling in Asia on Monday and now appears to have ended a three-day winning streak, rising to around 1.3000, a level not seen since July 2023. GBP/USD is currently trading around 1.2965, slightly up 0.15% on the day, with the dollar slightly stronger, but GBP/USD seems to be struggling to achieve a significant decline.
The attack on US presidential candidate Donald Trump last Sunday raised political uncertainty and drove some safe-haven inflows, allowing the dollar to recover some of its losses after falling to a more than three-month low last Friday. Nevertheless, the growing belief that the Federal Reserve (Fed) will soon start a rate-cutting cycle will continue to be a headwind for the dollar and provide some support for GBP/USD.
In fact, the CME FedWatch tool shows that the probability of the Fed reducing borrowing costs by 25 basis points (bps) in September is more than 90%. In addition, the market is pricing in the probability of another rate cut in December, and the US consumer inflation data released last week that was lower than expected also raised market bets. This could discourage investors from making new bullish bets on the dollar.
On the other hand, the probability of an August rate cut by the Bank of England (BOE) has decreased, especially after data released last week showed that the UK economy grew by 0.4% in May, which was higher than expected, which provided support for the pound. Therefore, investors need to proceed with caution before confirming that the GBP/USD pair may have formed a short-term top and establish positions for a clear decline in GBP/USD.
Market participants now look forward to the release of the Empire State Manufacturing Index in the United States. However, the focus will remain on the speech of Federal Reserve Chairman Powell, which, along with US Treasury yields and broader risk sentiment, will affect the direction of the US dollar. However, the above fundamental backdrop supports the prospect of some bargain hunting in GBP/USD.
