GBP/USD drops to 1.2400 mark, fresh daily low amid sustained USD buying.

GBP/USD drifts lower for the second straight day amid some follow-through USD buying.Bets for a 25 bps Fed lift-off in June push the US bond yields higher and underpin the USD.The risk-on mood could cap gains for the safe-haven buck and lend support to the major.

The GBP/USD pair kicks off the new week on a weaker note and retreats further from its highest level since May 16, around the 1.2540-1.2545 region touched on Friday. Spot prices extend the steady intraday descent through the early European session and drop to the 1.2400 neighbourhood, or a fresh daily low in the last hour.

The post-NFP US Dollar (USD) bounce from over a one-week low remains uninterrupted amid the uncertainty over the Federal Reserve’s (Fed) rate-hike path and drags the GBP/USD pair lower for the second successive day. It is worth recalling that a slew of influential Fed officials last week backed the case for skipping an interest rate hike, though the markets are still pricing in the possibility of another 25 bps lift-off in June.

Moreover, investors scaled back their expectations for an imminent pause in the Fed’s rate hiking cycle to July and eased off on bets for rate cuts later in the year following the release of the mixed US monthly employment details on Friday. This remains supportive of a further rise in the US Treasury bond yields and continues to underpin the Greenback, which, in turn, is seen exerting downward pressure on the GBP/USD pair.

That said, the prevalent risk-on environment might hold back traders from placing aggressive bullish bets around the safe-haven buck and lend support to the GBP/USD pair. The passage of legislation to lift the government’s $31.4 trillion debt ceiling to avert an unprecedented American default, along with hopes of a recovery in China, boost investors’ confidence and is evident from a generally positive tone around the equity markets.

Apart from this, firming expectations for additional interest rate hikes by the Bank of England (BoE), bolstered by stronger-than-expected UK consumer inflation figures for May, might contribute to limiting losses for the GBP/USD pair. Market participants now look forward to the release of the final UK Services PMI for a fresh impetus ahead of the US ISM Services PMI, due later during the early North American session.

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