■ The GBP/USD pair shows resilience near 1.2740 as dollar momentum falters

■ US Treasury yield retreat signals changing expectations for Fed policy

■ Mixed US economic data fuels speculation about potential rate cuts

■ Sterling finds support from BoE's likely continuation of tight monetary policy

The British pound demonstrates renewed strength against the US dollar, with the GBP/USD exchange rate hovering around 1.2740 during Friday's Asian trading session. This recovery comes after recent declines, as the greenback struggles to maintain upward momentum despite attempts to reverse its year-end slide. The US Dollar Index (DXY) currently trades below 101.13, reflecting broader dollar weakness across currency markets.

Market dynamics reveal an interesting shift in US Treasury yields, which retreated after Thursday's gains. The 2-year yield currently stands at 4.27%, down from 4.28%, while the 10-year yield slipped to 3.83% from 3.84%. This yield movement suggests traders are adjusting their positions in anticipation of potential Federal Reserve policy adjustments, creating headwinds for the dollar's performance.

Recent economic indicators from the United States present a mixed picture. Initial Jobless Claims rose to 218,000 for the week ending December 23, surpassing the 210,000 forecast. Meanwhile, November's Pending Home Sales remained unchanged at 0.0%, missing the projected 1.0% growth. These figures contribute to growing speculation that the Fed might adopt a more accommodative stance in upcoming policy meetings, potentially limiting the dollar's upside potential.

Market participants await the Chicago Purchasing Managers' Index for December, which could provide additional clues about regional economic conditions and influence dollar sentiment. The report's findings may either reinforce or challenge current market expectations regarding the US economic outlook and monetary policy trajectory.

The pound's relative strength stems from expectations that the Bank of England will maintain its restrictive policy stance, despite the UK facing the highest inflation among G7 economies. However, policymakers face significant challenges balancing inflation control with recession risks, as weakening domestic demand threatens economic contraction. This delicate balancing act creates uncertainty for sterling's medium-term outlook.

Attention now turns to the UK's Nationwide Housing Prices data for December. Economists anticipate monthly figures to show no change (0.0%) following November's 0.2% increase, while year-over-year prices are projected to decline 1.4% compared to the previous 2.0% drop. These housing market indicators could influence sterling's performance as traders assess the UK's economic health and potential policy implications.