Title: GBP/USD Price Outlook: Sterling Holds Above 1.3450 as Diverging Fed and BoE Policies Support Bullish Momentum
Author Credit: Originally written by Nick Cawley, TradingNews.com
Summary
The British Pound continues to show resilience against the US Dollar, buoyed by diverging monetary policy expectations between the Bank of England (BoE) and the Federal Reserve (Fed). The GBP/USD pair is currently trading steadily above the key level of 1.3450 and is showing signs of further bullish momentum. Market sentiment is being shaped by varying central bank policies, economic recovery expectations, and ongoing pandemic-related developments. Here’s a comprehensive breakdown of the factors driving Sterling’s current performance and the price forecast moving forward.
Current Market Performance
– The GBP/USD pair trades just above 1.3450, consolidating gains achieved in recent sessions.
– While momentum shows some limitations, the pair remains firm within a developing bullish structure.
– The market is assessing both technical positioning and fundamental drivers, including diverging central bank policy paths.
Supportive Factors for GBP/USD
1. Divergence in Central Bank Policies
– The Bank of England has adopted a more hawkish tone amidst improving domestic economic fundamentals.
– Conversations about tightening monetary policy, particularly regarding rate hikes in the near term, have supported GBP bid tone.
– Meanwhile, the US Federal Reserve maintains a more cautious approach to tightening, although tapering of asset purchases has begun.
– Fed Chair Jerome Powell has stressed a need for patience, noting that inflation, although persistently high, could moderate once supply chain issues ease.
– This divergence underpins Sterling’s strength relative to the greenback.
2. UK Economic Recovery Expectations
– UK GDP has shown a strong recovery trajectory following pandemic-related lockdowns.
– The labor market remains tight, with declining unemployment and rising wages.
– Consumer confidence, while wavering amid rising prices, remains generally optimistic, helping support domestic spending.
– The BoE’s Business Activity Index and other PMI indicators suggest that business sentiment is still expansionary.
3. Inflation Trends
– UK inflation has surged well beyond the BoE’s target of 2 percent, with recent data reflecting CPI readings above 4 percent.
– Persistent inflation pressure is making it increasingly difficult for the BoE to maintain its accommodative stance.
– Some policymakers argue for immediate policy action to curb overheating risks.
– US inflation also remains elevated, but the Fed indicates it might wait longer to raise interest rates until labor markets fully recover.
4. Pandemic Developments
– The United Kingdom has maintained higher vaccination rates, supporting the government’s decision to avoid stringent lockdowns.
– COVID-19 variants introduce uncertainty, but the risk premium on Sterling appears lower compared to earlier in 2021.
– Market perception views the UK as better equipped to handle virus resurgence compared to earlier stages of the pandemic.
Technical Analysis of GBP/USD
GBP/USD continues to form a technically constructive pattern, despite the recent periods of consolidation.
Key Technical Highlights:
– Support: The 1.3450 level is acting as a solid base, offering buyers confidence in re-entering the market.
– Resistance: 1.3700 remains a significant barrier; surpassing this could unlock further upside potential toward previous highs.
– 20-Day Moving Average: The pair is trending above this key short-term indicator, reinforcing bullish sentiment.
– Momentum Indicators: The Relative Strength Index (RSI) is neutral at present, neither indicating overbought nor oversold levels.
– MACD Lines: Show narrowing convergence, highlighting potential for renewed price direction.
Price Path Projections
Given the current technical and fundamental backdrop, various scenarios are possible:
Bullish Scenario:
– Price maintains support above 1.3450
– Positive UK data on GDP, CPI, or employment could lead to increased speculation
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