**GBP/USD Price Forecast: Pound Holds 1.3450 as Fed-BoE Split Keeps Bulls Aiming 1.37**
*By Justin McQueen, originally published on TradingNews.com*
The GBP/USD currency pair has shown resilience in the face of mixed signals from both the Bank of England (BoE) and the Federal Reserve (Fed). With the pound maintaining a foothold above the key 1.3450 level, currency traders are closely monitoring policy divergence and upcoming economic data, as outperforming expectations may lift the pair toward the 1.3700 region. This comprehensive analysis will explore the recent price action, the impact of central bank policy, and the primary technical levels that could shape the next phase for GBP/USD.
**Macro Backdrop: Diverging Central Bank Policy**
The recent divergence in monetary policy expectations between the Fed and the BoE has sparked moves in GBP/USD. Fundamental drivers include:
– **Federal Reserve Hawkishness**: The Fed has maintained a hawkish stance, signaling earlier rate hikes to combat persistent inflation. Markets have priced in at least two rate hikes for 2022, with the possibility of a third if inflation data remains strong.
– **Bank of England Caution**: Despite surging UK inflation, the BoE has treaded carefully. While it became the first major central bank to raise rates since the pandemic, recent communications suggest the BoE may pause after its initial hike to assess the evolving economic landscape.
This split between the two central banks is proving to be a critical driver for GBP/USD, as shifting rate expectations recalibrate market sentiment and risk appetite.
**GBP/USD Recent Price Action**
Since establishing a base near 1.3170 in early December, the pound has staged a determined recovery against the dollar. Key price milestones include:
– **Bounce From Multi-Month Lows**: The 1.3170 level served as a cycle low, from which sterling mounted a sharp rebound. The pair has steadily climbed, setting higher lows and higher highs.
– **Break Above 1.3400**: The move above 1.3400 signaled renewed bullish intent, as momentum indicators turned positive and buyers took control.
– **Support at 1.3450**: The pound has established a solid support floor at 1.3450, which has held firm despite several intraday tests. This level corresponds to previous resistance, now acting as a pivot zone and technical line in the sand for buyers.
– **Targeting 1.3700**: If positive macro data persists and the policy gap widens, traders see potential for GBP/USD to revisit the 1.3700 resistance zone, last touched in September 2021.
**Main Drivers Influencing GBP/USD Bias**
Several key factors are driving the current bullish tilt in GBP/USD, including:
– **Policy Divergence Narrative**: The belief that the Fed will be more aggressive than the BoE in tightening policy supports dollar strength. However, if the BoE resumes hikes sooner than expected, the pound could gain traction.
– **UK Economic Data Surprises**: Recent data releases, including robust labor market figures and above-target inflation, have exceeded consensus expectations. Economic resilience in the UK increases the likelihood of further BoE action, underpinning GBP.
– **COVID-19 Developments**: Fresh pandemic risks, including Omicron variant concerns, periodically trigger safe-haven flows into the dollar. Nonetheless, reopening progress and vaccine efficacy reports have reduced sterling downside risks.
– **Market Positioning and Flows**: Hedge funds and institutional investors are recalibrating their positioning in GBP/USD, with recent CFTC data showing a reduction in net short pound bets.
– **US Inflation and Fed Communications**: US CPI prints and FOMC guidance are the most influential dollar drivers in the short term. Stronger-than-forecast inflation numbers prompt a more hawkish Fed, limiting GBP/USD upside.
**Technical Analysis: Key Levels and
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