Based on the original article from Trading News titled “GBP/USD Price Forecast: Pound Holds 1.3450 as Fed-BoE Split Keeps Bulls Aiming 1.3700,” written by Nick Cawley, here is a rewritten and expanded version of the content, crediting the author and incorporating at least 1,000 words, with bullet points for any lists:
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GBP/USD Forecast: Pound Supported at 1.3450 as Policy Divergence Fuels Upside Potential
Written by Nick Cawley, Adapted and Expanded
The British pound (GBP) continues to hold its position against the US dollar (USD), with the GBP/USD currency pair maintaining levels above 1.3450. Despite the presence of various macroeconomic headwinds, the pair is signaling potential bullish momentum with market participants eyeing a return to the 1.3700 level. The movement in this pair is being supported by growing divergence between the monetary policy outlooks of the Bank of England (BoE) and the US Federal Reserve (Fed).
While the Fed remains cautious in its approach to tightening monetary policy, the BoE has taken a more assertive stance, being the first major central bank to raise rates in the face of mounting inflationary pressures. This contrast is giving sterling a relative advantage and encouraging market bulls to maintain their optimistic stance. In this article, we will explore the underlying factors contributing to the GBP/USD trajectory, including technical indicators, central bank policy dynamics, economic data, and broader global market trends.
Key Highlights:
– GBP/USD sustains levels above the critical support at 1.3450
– The policy divergence between the BoE and Fed underpins bullish sentiment
– Technical indicators suggest room for further upside towards 1.3700
– Risk sentiment and economic data remain crucial for short-term direction
The Role of Monetary Policy Divergence
Currency markets are heavily influenced by monetary policy expectations, and the different paths taken by the Bank of England and the Federal Reserve are currently a central driving force behind GBP/USD movements.
Bank of England’s Hawkish Approach:
– The BoE raised interest rates by 15 basis points during its December meeting, becoming the first major central bank to raise borrowing costs since the onset of the COVID-19 pandemic.
– This decision came amidst surging inflation, with UK CPI figures reaching 5.1% YoY in November — the highest rate in a decade.
– Policymakers at the BoE signaled that further rate hikes are likely in 2022 to rein in inflation expectations and restore price stability.
Federal Reserve’s Calculated Tightening:
– In contrast, the US Federal Reserve has adopted a more measured approach.
– While the Fed did accelerate the tapering of its asset purchase program and hinted at three potential rate hikes in 2022, Chair Jerome Powell emphasized a data-dependent strategy.
– The central bank remains committed to supporting the labor market recovery and maintaining financial stability, which has led to a perception of dovishness compared to peers like the BoE.
This divergence in policy stances has contributed to relative strength in the British pound and explains part of the GBP/USD resilience around key support levels. The possibility of more aggressive action by the BoE compared to the Fed in the near term enhances the risk-reward layout for pound bulls.
Technical Analysis: GBP/USD
The GBP/USD pair has shown technical resilience, with the 1.3450 level serving as a strong support area. From a chartist’s perspective, several indicators point to potential upward momentum, assuming no dramatic change in fundamentals or risk appetite.
Support and Resistance Levels:
– Immediate support lies at 1.3450, a level that has been tested multiple times but has held firmly so far
– On the upside, resistance is likely at 1.3575, followed by the psychological mark of 1.3700
– A sustained break above 1.3700 could open up targets toward 1.3830
Explore this further here: USD/JPY trading.