GBP/USD strengths beyond mid-1.2600s, hits fresh one-year high amid weaker USD

• GBP/USD scales higher for the fourth straight day and touched a fresh one-year high on Monday.
• Dovish Fed expectations keep the USD depressed and remain supportive of the ongoing move up.
• Investors now look to the US CPI on Wednesday for a fresh impetus ahead of the BoE on Thursday.

The GBP/USD pair gains positive traction for the fourth successive day on Monday and builds on its steady intraday ascent through the mid-European session. The momentum lifts spot prices to the highest level since May 2022, around the 1.2660-1.2665 area in the last hour and is sponsored by a combination of supporting factors.

Despite the better-than-expected release of the US monthly jobs report on Friday, the US Dollar (USD) remains depressed near the monthly low touched last week amid growing acceptance that the Federal Reserve (Fed) is approaching the end of its rate-hiking cycles. Apart from this, expectations that the Bank of England (BoE) will raise interest rates by 25 bps later this week underpin the British Pound and act as a tailwind for the GBP/USD pair.

The Fed Fund futures point to a 90% probability that the US central bank will hold rates in June. Moreover, the markets have been pricing in the possibility that the Fed will cut rates in the second half of this year amid signs that the economy is slowing. This, along with worries about a full-blown banking crisis and the US debt ceiling, leads to a further decline in the US Treasury bond yields and continues to exert some downward pressure on the Greenback.

The upside potential for the GBP/USD pair, however, seems limited, at least for the time being, as traders might prefer to move to the sidelines ahead of the release of the latest US consumer inflation figures on Wednesday. This will be followed by the BoE monetary policy meeting on Thursday and the first quarter UK GDP report on Friday, which will play a key role in influencing the British Pound and help determine the near-term trajectory for the major.

In the meantime, a generally positive tone around the equity markets could undermine the safe-haven Greenback and continue to lend some support to the GBP/USD pair in the absence of any relevant market-moving economic releases on Monday. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities around the major.

Technical levels to watch