The pound (GBP) recovered all its intraday losses and rose above 1.2500 against the US dollar (USD) in the North American session on Monday (1/27). The GBP/USD pair bounced back as the US dollar weakened after investors digested concerns over US President Donald Trump imposing 25% tariffs on Colombia overnight.

Over the weekend, President Trump threatened to impose tariffs on its South American trading partner for not allowing military flights carrying illegal immigrants into their territory. Trump later delayed the proposed tariffs after Colombia accepted his terms.

The US Dollar Index (DXY), which tracks the greenback against six major currencies, fell back to near 107.50 from an intraday high of 107.80. The greenback lost its risk premium as market participants expected President Trump to use tariffs only to negotiate a deal. "This seems to reinforce the notion that Trump is less committed to protectionism than he stated before his inauguration, and that ultimately some of those tariff threats may not materialize as long as some concessions are made on trade," ING said.

Looking ahead, the main trigger for the US dollar this week will be the Federal Reserve's monetary policy decision, due to be announced on Wednesday. The Fed is almost certain to keep interest rates unchanged in a range of 4.25%-4.50%. Investors will be watching Fed Chair Jerome Powell's press conference after the rate decision, which is expected to be about whether the Fed will react positively to Trump's call for an immediate rate cut. (AL)

Source: FXstreet