GBP/USD rebounds from multi-month low on softer USD, lacks follow-through beyond 1.2400

• GBP/USD gains some positive traction on Monday and moves away from over a three-month low.
• A positive risk tone is seen undermining the safe-haven USD and lending some support to the pair.
• Diminishing odds for more aggressive BoE rate hikes might keep a lid on further gains for the GBP.

The GBP/USD pair attracts some buying on the first day of a new week and reverses a part of Friday's slide to the 1.2380-1.2375 area, or its lowest level since June. Spot prices currently trade around the 12400 round figure and draw some support from a softer US Dollar (USD), though any meaningful appreciating move still seems elusive.

A generally positive tone around the US equity future fails to assist the safe-haven Greenback to capitalize on its longest weekly winning streak since 2014. The USD downtick could further be attributed to some repositioning trade ahead of this week's key central bank event risk – the outcome of the highly-anticipated two-day FOMC monetary policy meeting starting on Tuesday. The Fed is scheduled to announce its decision on Wednesday and is widely expected to leave interest rates unchanged.

The markets, however, are still pricing in the possibility of one more 25 bps lift-off in November or December. Hence, the market focus will be on the accompanying policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference. Investors will look for fresh cues about the Fed's future rate-hike path, which, in turn, will play a key role in influencing the near-term USD price dynamics and help investors determine the next leg of a directional move for the GBP/USD pair.

In the meantime, diminishing odds for a more aggressive policy tightening by the Bank of England (BoE) might hold back traders from placing aggressive bullish bets around the British Pound (GBP). In fact, BoE Governor Andrew Bailey had told lawmakers that the central bank is now "much nearer" to ending its run of interest rate increases. This, along with reviving recession fears and signs that the UK labour market is cooling, might put pressure on the BoE to pause its rate-hiking cycle.

In the absence of any relevant market-moving economic releases on Monday, the aforementioned fundamental backdrop warrants some caution positioning for any further recovery. Hence, it will be prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has formed a near-term bottom.

Technical levels to watch