• GBP/USD kicks off the new week on a weaker note as rising geopolitical tensions boost the USD.
• The divergent Fed-BoE policy expectations lend some support to spot prices and help limit losses.
• Traders also seem reluctant to place directional bets ahead of this week’s key US macro releases.

The GBP/USD pair opens with a modest bearish gap at the start of a new week and trades just below mid-1.3400s during the Asian session, down 0.10% for the day. Spot prices, however, lack follow-through selling and manage to hold above last week's swing low amid mixed fundamental cues.

Against the backdrop of the protracted Russia-Ukraine war and unrest in the Middle East, the US military attack on Venezuela adds to concerns about rising geopolitical tensions and drives some safe-haven flows towards the US Dollar (USD). This assists the USD Index (DXY), which tracks the Greenback against a basket of currencies, to build on its recent recovery from the lowest level since early October and turns out to be a key factor exerting pressure on the GBP/USD pair.

However, speculation about interest rate cuts by the US Federal Reserve (Fed) in March and maybe another later this year might keep a lid on any further USD appreciation. The British Pound (GBP), on the other hand, continues to draw support from easing worries over the UK budget. Moreover, hawkish Bank of England's (BoE) expectations mark a significant divergence in comparison to the Fed and should further contribute to limiting the downside for the GBP/USD pair.

As expected, the Bank of England cut rates by 25 basis points (bps) to 3.75% in December, with the vote split at 5–4. The narrow vote split pointed to differences within the committee on the back of the recent inflation surprise. This, in turn, forced investors to scale back their expectations for more aggressive easing by the BoE this year, which should act as a tailwind for the GBP and the GBP/USD pair ahead of important US macro releases scheduled at the start of a new month.