GBP/USD holds steady above 1.2400; upside potential seems limited amid bullish USD

• GBP/USD kicks off the new week on a subdued note as USD stands near a two-year high. 
• The Fed's hawkish shift, trader war fears and geopolitical risks underpin the safe-haven buck. 
• The fundamental backdrop warrants caution before positioning for any meaningful recovery.

The GBP/USD pair struggles to capitalize on Friday's modest recovery gains and oscillates in a range, above the 1.2400 mark at the start of a new week. Spot prices, meanwhile, remain close to the lowest level since April 2024 touched last week and seem vulnerable to prolonging over a three-month-old downtrend on the back of a bullish US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, stands firm near a two-year high amid the optimism over US President-elect Donald Trump's expansionary policies and the Federal Reserve's (Fed) hawkish outlook. Adding to this concerns over Trump's sweeping tariffs, along with geopolitical risks stemming from the Russia-Ukraine war and rising tensions in the Middle East, underpins the safe-haven buck and act as a headwind for the GBP/USD pair. 

Meanwhile, the sentiment surrounding the British Pound (GBP) remains weak amid a series of weak data from the UK recently and doubts about the newly elected Labour government's fiscal strategy. Furthermore, the Bank of England's (BoE) relatively dovish stance and a split vote decision to leave interest rates unchanged in December might continue to weigh on the GBP. This validates the negative outlook for the GBP/USD pair as traders look to the final UK Services PMI for a fresh impetus. 

Later during the North American session, the US macro data - final Services PMI and Factory Orders - might influence the USD and contribute to producing short-term opportunities. Nevertheless, the fundamental backdrop seems tilted in favor of the USD bulls and suggests that the path of least resistance for the GBP/USD pair is to the downside. Investors, however, might opt to wait for this week's important US economic releases, including the crucial US Nonfarm Payrolls (NFP) on Friday.