GBP/USD rebounds from three-week low, eyes mid-1.3400s as Fed concerns weigh on USD

The GBP/USD pair attracts some buyers near a technically significant 200-day Simple Moving Average (SMA) and recovers slightly from a nearly three-week low, touched during the Asian session on Monday. Spot prices, for now, seem to have snapped a four-day losing streak and currently trade around the 1.3435 region, up 0.20% for the day.

Despite the global flight to safety and reduced bets for more aggressive policy easing by the US Federal Reserve (Fed), renewed concerns about the US central bank's independence weigh on the US Dollar (USD) and benefit the GBP/USD pair. In fact, Fed Chair Jerome Powell said in a statement that the Department of Justice is threatening a criminal indictment against him. Powell added that the threat of criminal charges is a consequence of the Fed on our best assessment of what will serve the public, rather than following the preference of the President.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, is seen extending Friday's retracement slide from its highest level since December 9, touched ahead of the crucial US Nonfarm Payrolls (NFP) report. The headline US NFP showed that the economy added 50K new jobs in December, undershooting market expectations and offsetting a decline in the Unemployment Rate to 4.4%. Nevertheless, the data backs the case for potentially stagnant monetary policy in the first quarter, though it does little to impress the USD bulls.

However, rising bets for two more interest rate cuts by the Bank of England (BoE) in 2026 might hold back traders from placing aggressive bullish bets around the British Pound (GBP) and cap the GBP/USD pair. Traders might also opt to wait for this week's release of the latest US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Tuesday and Wednesday, respectively. Moreover, the monthly UK GDP report on Thursday would provide some meaningful impetus to the GBP/USD pair during the latter part of the week.