The GBP/USD pair started the new week on a calm note, consolidating its relatively strong recovery from the 1.3140 area, its lowest level since April 14, reached earlier this month. Spot prices traded just below the mid-1.3400s during the Asian session, remaining largely unchanged throughout the day, although the fundamentals appear to be tilted toward bullish traders.

The Bank of England (BoE), as widely expected, cut interest rates by 25 basis points (bps) last week, bringing the benchmark interest rate down to 4%, its lowest level since 2023. However, the narrow 5-4 vote indicated greater resistance to a rate cut than the market had anticipated and forced traders to reduce their bets on aggressive BoE easing. This is likely to continue supporting the British Pound (GBP), which, along with the weak US Dollar (USD), acted as a driver for the GBP/USD pair.

The USD Index (DXY), which tracks the greenback against a basket of currencies, struggled to capitalize on Friday's modest gains from a two-week low amid growing speculation that the Federal Reserve (Fed) will lower borrowing costs in September. Furthermore, traders are also pricing in the possibility that the US central bank will cut interest rates at least twice by the end of this year. This should keep USD investors on the defensive and validate the positive short-term outlook for the GBP/USD pair.

Meanwhile, dovish expectations regarding the Fed were reaffirmed by comments by Fed Governor Michelle Bowman on Saturday, who said that three interest rate cuts were likely appropriate this year. Bowman added that the apparent weakness in the labor market outweighed the risk of higher inflation going forward. This, in turn, suggests that any corrections could be viewed as buying opportunities, which should limit the downside for the GBP/USD pair ahead of this week's key macro data releases.

The latest US consumer inflation data will be released on Tuesday, followed by preliminary UK Q2 GDP data and the US Producer Price Index (PPI) on Thursday. This crucial data will significantly impact spot prices and help determine the direction of future movements. Meanwhile, speeches from influential FOMC members could boost demand for the USD and the GBP/USD pair if there is no relevant market-moving economic data from the UK or US. (alg)

Source: FXstreet