GBP/USD trades with mild positive bias on softer USD, remains below 1.2700 mark

• GBP/USD continues to draw support from some follow-through USD profit-taking.
• Reduced bets for aggressive Fed rate cuts and BoE uncertainty might cap the upside.
• Traders also seem reluctant ahead of the BoE’s Monetary Policy Report Hearings.

The GBP/USD pair attracts buyers for the second straight day on Tuesday amid a modest US Dollar (USD) downtick and climbs back closer to the 1.2700 mark during the Asian session. Spot prices, however, lack bullish conviction as investors opt to wait for the Bank of England’s (BoE) Monetary Policy Report Hearings before placing aggressive directional bets. 

BoE Governor Andrew Bailey and several MPC members will testify on inflation and the economic outlook before Parliament’s Treasury Committee. This will play a key role in influencing market expectations about potential interest rate adjustments going forward, which, in turn, will drive the British Pound (GBP) and provide some meaningful impetus to the GBP/USD pair. 

The focus will then shift to the latest UK consumer inflation figures on Wednesday. In the meantime, softening US Treasury bond yields prompts some follow-through US Dollar (USD) profit-taking and drags it away from the year-to-date (YTD) top set last week. This, along with a positive risk tone, undermines the safe-haven buck and acts as a tailwind for the GBP/USD pair.

Any meaningful USD depreciation, however, seems elusive in the wake of expectations that US President-elect Donald Trump’s policies will likely rekindle inflationary pressures and limit the scope for further rate cuts by the Federal Reserve (Fed). This should keep the US bond yields elevated and favors the USD bulls, which, in turn, might cap gains for the GBP/USD pair. 

Moreover, the uncertainty concerning the BoE’s path forward on interest rates might contribute to keeping a lid on spot prices. Hence, it will be prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has bottomed out and positioning for any meaningful recovery from sub-1.2600 levels, or a multi-month trough touched last week.