GBP/USD hovers above 1.2500, focus on UK labor data scheduled for Tuesday

• GBP/USD inches higher possibly driven by improved risk appetite on Monday.
• BoE’s Chief Economist Huw Pill indicated a growing belief that rate cuts might be on the horizon.
• The US Dollar struggled as the US Consumer Sentiment Index dropped to 67.4 in May, marking a six-month low.

GBP/USD edges higher to near 1.2520 during the Asian session on Monday, possibly due to improved risk appetite. The Pound Sterling (GBP) was bolstered by releasing higher-than-expected UK Gross Domestic Product (GDP) figures on Friday. The UK economy expanded by 0.6% in Q1, surpassing forecasts and signaling the end of the nation's brief recession. This economic rebound represented the most robust growth seen in over two years.

However, the British Pound faced a challenge following dovish remarks from Huw Pill, Chief Economist at the Bank of England (BoE). Pill echoed the sentiment of the majority of the BoE's Monetary Policy Committee (MPC), who opted to maintain interest rates at 5.25% on Thursday. Yet, he subsequently expressed a growing belief that rate cuts could be imminent.

The market participants are likely to await the employment data from the United Kingdom (UK) on Tuesday with expectations of Claimant Count Change showing an increase in the number of those claiming jobless benefits in April. Additionally, the ILO Unemployment Rate (3M) is expected to show an increase in number of unemployed workers in the UK.

This week, investors in the United States (US) are poised to focus on key economic indicators for potential market drivers, including the Consumer Price Index (CPI), Producer Price Index (PPI), and Retail Sales.

On Friday, the US Dollar (USD) encountered challenges following the release of the University of Michigan Consumer Sentiment Index, which dropped to 67.4 in May from April's 77.2, marking a six-month low and falling short of market expectations of 76 reading.

However, the extent of these losses may have been curbed by an uptick in inflation expectations for the year ahead, with a reading of 3.5%, the highest in six months compared to April's 3.2%. Additionally, the five-year inflation outlook rose to 3.1%, a six-month high, up from 3.0% previously. These inflation indicators might have supported the US Treasury yields to advance, potentially lending support to the Greenback.