The Pound Sterling (GBP) has made a notable recovery against the US Dollar (USD), reclaiming the 1.2500 threshold after hitting a 14-month low. This resurgence comes amid thin trading conditions due to US markets being closed for Presidents' Day. The easing of concerns over US President Donald Trump's tariff policies has fostered a risk-on sentiment, allowing the GBP/USD pair to regain lost ground.
The primary driver of the GBP/USD pair's upward trend is the ongoing correction of the US Dollar against major currency rivals. Over the past week, the USD Index has declined by more than 1%, providing a tailwind for the GBP/USD pair, which has consolidated near 1.2600 after a 1.5% gain in the previous week. In contrast, the Euro (EUR) is struggling to leverage its recent gains, with the EUR/USD pair oscillating below 1.0500 in European trading on Monday.
President Trump's reciprocal tariffs plan and dovish expectations from the US Federal Reserve have added to the downward pressure on the Greenback. Despite Fed Chairman Jerome Powell maintaining a hawkish stance during his recent Congressional testimonies, persistent US Dollar weakness and an upbeat market mood have cushioned the downside for the GBP/USD pair.
The subdued action in the US Dollar follows disappointing US Retail Sales data released last Friday, further bolstering the GBP's position. Investors remain cautious, awaiting pivotal macroeconomic data releases from the UK that could influence future market directions. As a result, the GBP/USD pair may face challenges in finding clear direction in the short term.