• GBP/USD softens to near 1.3670 in Monday’s early European session. 
• Easing concerns over the Fed’s independence and hotter PPI inflation underpin the US Dollar. 
• The Bank of England is expected to leave interest rates unchanged at 3.75%

The GBP/USD pair loses ground to around 1.3670 during the early European session on Monday, pressured by renewed US Dollar demand. Signs of political stability in the United States (US) provide some support to the Greenback against the Pound Sterling (GBP). Traders will take more cues from the US ISM Manufacturing Purchasing Managers Index (PMI) data later on Monday.

US President Donald Trump said on Friday that Kevin Warsh, who prefers a smaller central bank balance sheet, would be his pick for the next Fed chair. Markets anticipate that Warsh may lean toward a smaller Fed balance sheet and hold the interest rate higher for longer, which provides some support to the USD and creates a headwind for the major pair. 

Hotter-than-expected US producer price inflation might contribute to the US Dollar’s upside, as it could further strengthen the case for the Fed to hold rates steady. The Bureau of Labor Statistics revealed on Friday that the US Producer Price Index (PPI) climbed 3.0% YoY in December, beating the forecast of 2.7%. On a monthly basis, the PPI rose 0.5% MoM in December, above the market consensus and the previous reading of 0.2%.

On the Cable front, the Monetary Policy Committee voted 5-4 to cut the bank rate in December, the fourth quarter-point reduction of 2025. But most of its policymakers suggested the pace of rate cuts could slow. The Bank of England (BoE) is expected to keep its benchmark rate at 3.75% on Thursday, with Governor Andrew Bailey and colleagues keeping their options open.