Ella 
During the European session on Monday, GBP/USD fluctuated around 1.2760, recovering the day’s losses as the US dollar (USD) lost ground due to weaker US bond yields, coupled with weak US producer price index (PPI) data. Rising tensions in the Middle East have hedged against market risk sentiment, especially after the United States and Britain launched military attacks on Iranian-led Houthi rebel targets on Friday. This geopolitical development has impacted both USD strength and overall GBP/USD trading sentiment.
U.S. Treasury yields fell, and the U.S. dollar index rose during the day. As of press time, the two-year U.S. Treasury yields and the 10-year U.S. Treasury yields were 4.14% and 3.94% respectively. Market expectations that the Federal Reserve may cut interest rates in March have increased, weighing on U.S. bond yields. The speculation gained momentum, especially after Barclays on Friday revised its forecast for the Fed’s first rate cut, bringing it forward from June to March.
In addition, the producer price index (PPI) data released on Friday was less than expected, which may also put downward pressure on the US dollar. Data from the U.S. Bureau of Labor Statistics showed that the annual producer price index in December was 1.0%, compared with the previous value of 0.8%. The core producer price index came in at an annual rate of 1.8%, down from the previous reading of 2.0%. The overall producer price index and core monthly rates were -0.1% and 0.0% respectively.
GBP/USD may find some support following improved UK production data on Friday. Data released by the Office for National Statistics on Friday showed that activity in the British industrial sector rebounded in November. Total industrial production (monthly rate) was in line with expectations, in sharp contrast to the previous decline. UK manufacturing production rose at an annual rate in November. However, total industrial output fell by 0.1% in November.
