06 Jan 2025

• GBP/USD kicks off the new week on a subdued note as USD stands near a two-year high. 
• The Fed’s hawkish shift, trader war fears and geopolitical risks underpin the safe-haven buck. 
• The fundamental backdrop warrants caution before positioning for any meaningful recovery.
• The GBP/USD pair is currently facing challenges in leveraging the modest recovery observed on Friday, fluctuating within a range just above the 1.2400 threshold as the new week commences. Spot prices remain near the lowest point recorded since April 2024, reached last week, and appear susceptible to extending a downtrend that has persisted for three months, primarily due to the strength of the US Dollar (USD).
  
  The USD Index (DXY), which measures the performance of the Greenback against a selection of currencies, remains robust near a two-year peak, fueled by optimism regarding the expansionary policies of US President-elect Donald Trump and the hawkish stance of the Federal Reserve (Fed). Additionally, concerns regarding Trump's extensive tariffs, coupled with geopolitical uncertainties related to the Russia-Ukraine conflict and escalating tensions in the Middle East, bolster the appeal of the safe-haven dollar, presenting challenges for the GBP/USD pair.
  
  In parallel, sentiment surrounding the British Pound (GBP) is notably weak, influenced by a series of disappointing economic data from the UK and uncertainties regarding the fiscal strategy of the newly elected Labour government. Moreover, the Bank of England's (BoE) relatively dovish approach and the split decision to maintain interest rates in December may continue to exert pressure on the GBP. This context reinforces the negative outlook for the GBP/USD pair as traders anticipate the final UK Services PMI for potential new direction.
• Subsequently, in the North American trading session, the release of US macroeconomic data—specifically the final Services PMI and Factory Orders—could impact the USD and create short-term trading opportunities. However, the overall fundamental environment appears to favor USD bulls, indicating that the most likely direction for the GBP/USD pair is downward. Nonetheless, investors may choose to hold off until the significant US economic reports are released this week, particularly the key Nonfarm Payrolls (NFP) data scheduled for Friday.