GBP/USD ticks higher to 1.3025 area on softer USD, BoE rate-cut bets cap gains

GBP/USD recovers further from a two-month low, albeit the upside potential seems limited.

The USD bulls opt to take some profits off the table, which, in turn, lends support to the pair.

An unexpected fall in the UK inflation reaffirms bets for more BoE rate cuts and caps the GBP.

The GBP/USD pair attracts some follow-through buying during the Asian session on Friday and looks to build on the overnight bounce from the 1.2975-1.2970 region, or a two-month low. Spot prices currently trade around the 1.3020-1.3025 area, up 0.10% for the day amid a modest US Dollar (USD) downtick, though any meaningful appreciating move still seems elusive. 

The USD Index (DXY), which tracks the Greenback against a basket of currencies, pulls back from its highest level since early August as traders opt to take some profits off the table following a strong rally since the beginning of this month. That said, growing acceptance that the Federal Reserve (Fed) will proceed with modest rate cuts over the next year should limit the USD losses and cap the GBP/USD pair. 

Furthermore, a surprise fall in the UK Consumer Price Index (CPI) to the lowest level since April 2021 and below the Bank of England's 2% target paves the way for further interest rate cuts. In fact, the money markets are now pricing in over a 90% chance that the UK central bank will lower borrowing costs by 25 basis points (bps) at its upcoming meeting in early November and cut rates again in December. 

This might further hold back traders from placing aggressive bullish bets around the British Pound (GBP) and contribute to keeping a lid on the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent retracement slide from the 1.3435 region, or the highest level since March 2022 touched last month has run its course and positioning for further gains.