GBP/USD maintains position above 1.3550 near 39-month highs due to risk-on mood

• GBP/USD holds gains near the 39-month high of 1.3593.
• The US Dollar struggles as risk appetite increases amid easing US-EU trade tensions.
• The Pound Sterling advances as the odds of deep rate cuts by the BoE diminish.

GBP/USD extends its winning streak for the third successive session, trading around 1.3570 during the Asian hours on Tuesday. The pair is hovering near the 39-month high of 1.3593, which was marked on Monday. The pair continues to appreciate as the US Dollar (USD) weakens due to growing fears over the United States' (US) debt concerns.

The Greenback faces challenges as the easing trade tension between the United States (US) and the European Union (EU) improves the traders' risk appetite. US President Donald Trump extended the tariff deadline on the European Union (EU) from June 1 to July 9 after having a phone call with European Commission President Ursula von der Leyen on Sunday. On Friday, Trump threatened to impose a 50% tariff on imports from the European Union (EU).

Additionally, the US Dollar attracts sellers as the United States (US) faces concerns over fiscal deficit ahead of Trump's "One Big Beautiful Bill" going through the Senate floor. The Bill is expected to increase the deficit by $3.8 billion, as it would deliver tax breaks on tip income and US-manufactured car loans, according to the Congressional Budget Office (CBO).

Trump's Bill includes provisions like tax cuts, spending increases, along raising the debt ceiling. This could worsen the US government's finances and increase the risk of bond yields staying higher for longer. Higher bond yields can keep borrowing costs higher for consumers, businesses, and governments.

Moreover, the Pound Sterling (GBP) rises as traders reassess the Bank of England's (BoE) monetary policy outlook after the release of the hotter-than-expected inflation and retail sales data for April, released last week. Reuters reported that the futures market indicates UK rates to fall by around 38 basis points (bps) in 2025, which would suggest one 25 bps interest rate cut and a roughly 50/50 chance of a second cut.