**GBP/USD Price Forecast: Pound Holds 1.35 as Fed Rate Cut Bets Trump Fed Chair Speculation**
*By David Becker, TradingNews.com*
The GBP/USD pair has proven remarkably resilient, with the pound sterling maintaining its position above the significant 1.35 level against the US dollar amid swirling speculation over future monetary policy actions by the US Federal Reserve, as well as uncertainties surrounding the Fed chair’s future. While the market’s focus briefly shifted to the potential re-nomination (or replacement) of Fed Chair Jerome Powell, expectations of a Federal Reserve interest rate cut continue to dominate trader sentiment and currency movements.
### **Pound Supported Above 1.35: Technical and Fundamental Factors**
The pound’s ability to stay aloft above the 1.35 level reflects a convergence of both technical support and evolving fundamentals:
– **Key technical area:** 1.35 stands as a notable psychological and technical level for the GBP/USD pair. This area has served as both resistance and support in recent months, and its defense by bullish traders signals strong demand for the pound.
– **Relative rate outlooks:** The principal driver supporting the pound is the divergent outlook for interest rates. Markets have increasingly priced in the likelihood of a US rate cut, pushing the US dollar lower versus currencies backed by more hawkish central banks or those expected to tighten sooner, such as the Bank of England.
– **Post-pandemic growth:** The UK economy, while facing its own headwinds, has shown signs of bouncing back from the COVID-19 pandemic, giving the Bank of England some scope for policy normalization in the near term.
### **Fed Policy: Rate Cut Bets Surge**
The most significant influence on GBP/USD in the near term continues to be the shifting expectations for US monetary policy. Over the past weeks, several developments have intensified bets on a potential rate cut by the Federal Reserve:
– **Mixed economic data:** US economic releases, including labor market metrics and inflation figures, have painted a picture of uneven growth. While employment gains persist, inflationary pressures have fallen short of the Fed’s explicit targets, fueling speculation that the central bank will ease policy to maintain the recovery.
– **Delta variant impact:** Mounting concerns about the spread of the COVID-19 Delta variant have spooked markets and led to calls for monetary support to cushion any potential downturn in activity.
– **Yield curve reaction:** As a result of these factors, US Treasury yields dropped, highlighting growing market belief that the Fed will need to take action sooner rather than later.
This confluence of developments has shifted market expectations sharply:
– The odds of another US interest rate hike in the aftermath of the pandemic continue to fall, with Fed Funds futures pricing in at least one 25 basis point rate cut by the middle of the coming year.
– The US dollar, as measured by the DXY index, has lost ground as rate cut risks rise, benefiting rivals like the pound.
### **Fed Chair Speculation: Markets Look Past the Powell Saga**
Recently, the focus in Washington has also been on the future of the current Fed Chair, Jerome Powell, whose term is set to expire. While such leadership uncertainty can sometimes trigger currency market volatility, traders appear far more concerned with Fed policy direction than with who, exactly, occupies the top spot at the central bank.
– **Powell re-nomination odds**: While some Democratic lawmakers have voiced opposition to Powell’s reappointment, the White House has at times signaled support. Speculation over whether President Biden will nominate someone more dovish or maintain continuity by sticking with Powell briefly impacted FX volatility.
– **Policy over personalities**: Despite the background noise, the currency market is mainly reacting to signals about monetary policy shifts rather than leadership changes. As Michael Feroli of JPMorgan Chase observed, “Markets are laser-focused on policy outlook, not personalities.” Any new Fed chair would still preside over an institution now perceived as dovish.
### **Bank of England Policy: Waiting for
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