The pound reaches a peak of 1.25 as the dollar weakens.

• Investors are focused on when the Federal Reserve might start cutting rates.

• There was an unexpected fall in British retail sales volumes for October.

• In October, there was a slight increase in US single-family homebuilding.

As the new week dawned on Monday, a bullish glow enveloped the GBP/USD outlook as the pound rallied on a weakening dollar. This decline in the dollar came as investors focused on when the Federal Reserve might start cutting rates. Currently, markets have ruled out the possibility of further rate hikes from the Fed due to a weaker inflation reading.

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Meanwhile, official data on Friday revealed an unexpected fall in British retail sales volumes for October, signaling financial strain among consumers. There was a 0.3% month-on-month decline, following a revised 1.1% drop in September, worse than initially estimated.

Economists had expected a 0.3% rise in October sales volumes. Moreover, the figures align with the gloomy outlook for the British economy. Economic growth remains stagnant, and strong price pressures are fading slowly. Consequently, investors anticipate these factors will compel the Bank of England to lower interest rates next year.

Furthermore, given the narrow escape from an economic contraction in the third quarter, the Friday figures indicate a risk of GDP being revised lower to a negative reading. Compared to the last year, retail sales were 2.7% lower.

Meanwhile, data from the US on Friday showed a slight increase in US single-family homebuilding. However, the outlook for the near term suggests that activity may stay moderate due to elevated mortgage rates. These higher rates contributed to a significant decline in homebuilder confidence.

GBP/USD key events today

There are no key events today, which might lead to a slow start to the week for GBP/USD.

GBP/USD technical outlook: Bullish bias holds, but momentum weakens.

The GBP/USD price has bounced off the 1.2400 key support level and is approaching the 1.2501 resistance level. The bias is bullish, but the momentum has weakened. Additionally, this weakness can be seen in the RSI, which has made a bearish divergence while the price made a double top. 

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If bulls are weaker, the price will likely fail to go above the 1.2501 resistance. Therefore, bears might resurface to push the price back to the 1.2400 support. However, if bulls regain momentum, the price will rise above the 1.2501 resistance.

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