GBP/USD Holds Steady Near 1.2700 as Trading Conditions Thin Out

The GBP/USD pair experienced a slight decline at the start of the week but managed to reverse its losses during the American session, ultimately closing the day near 1.2700 with minimal changes on Monday. On Tuesday, the pair continued to fluctuate within a narrow range as trading conditions thinned out due to the Independence Day holiday in the United States.

The US dollar (USD) exhibited weakness against its counterparts on Monday following the release of the ISM Manufacturing PMI report, which indicated a continued contraction in economic activity within the manufacturing sector throughout June. Furthermore, the Employment Index dropped below 50, suggesting a decline in sector payrolls. The Prices Paid Index, which reflects inflationary pressures, also decreased to 41.8 from 44.2. These negative findings from the PMI survey contributed to the depreciation of the US Dollar Index, causing it to retreat from its session high near 103.30 to around 103.00.

However, despite the weakened USD, investors may exercise caution in anticipating further strength in the Pound Sterling (GBP) against the USD in the near term, considering the relatively better performance of the US economy. Rabobank analysts highlighted this perspective in a recently published report, stating that while there are widespread expectations regarding potential Bank of England (BoE) rate hikes in the coming months, concerns over enhanced growth risks resulting from tighter monetary policy could limit the upside for GBP. They further noted that previous instances have shown that BoE rate hikes do not always lead to a significant uplift in the value of the Pound.