**Pound to Dollar Forecast: Can GBP/USD Break 1.35 as FTSE Hits Record Highs?**
*By Tim Clayton, Currency News UK*
The Pound Sterling (GBP) has experienced considerable volatility against the US Dollar (USD) in recent sessions, driven by a combination of domestic UK data, shifting Bank of England (BoE) interest rate expectations, and broader global risk sentiment. With the FTSE 100 reaching fresh record highs, market participants are now closely analyzing whether the GBP/USD pair can sustain upward momentum and break above the significant 1.35 level.
Below, we explore the key factors shaping the GBP/USD outlook, review recent price action, and summarize analyst projections for the near to medium term.
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### FTSE 100: A Supportive Backdrop for Sterling
The performance of the UK’s main equity benchmark, the FTSE 100, has been a notable narrative in early 2024. With corporate earnings proving resilient and global equities supported by hopes of central bank rate cuts, the FTSE has surged to new record highs. This bullish backdrop has boosted overall risk appetite and improved sentiment towards UK assets, including the Pound.
**Key FTSE 100 Themes:**
– Record-high closes driven by energy, mining, and financial sector strength.
– Overseas earnings for FTSE constituents provide a buffer against domestic headwinds.
– International investors have increased allocations to UK equities, viewing valuations as attractive.
While the FTSE’s gains do not directly translate to GBP appreciation, strong stock market performance tends to encourage investment inflows, providing indirect support to the currency.
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### GBP/USD Recent Performance
In the first week of January, GBP/USD experienced choppy trading within a relatively tight range. After initially rallying towards 1.2775 amid general Dollar weakness at year-end, the pair found resistance near this area and retreated as the Dollar regained strength on firmer US data and hawkish Federal Reserve commentary.
**Recent Price Action:**
– Late December: GBP/USD rose as UK economic prints improved and global risk sentiment brightened.
– Early January: Gains stalled at 1.2775, with subsequent pullback to the mid-1.26s as the US Dollar stabilized.
– Technical support remains near 1.2600, while resistance is seen at 1.2800 and then 1.2900.
Overall, Sterling has proved resilient given subdued expectations for UK economic growth. However, persistent UK inflation and rate dynamics continue to cap significant upside.
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### Domestic Drivers: UK Data and BoE Policy
The next phase for GBP/USD will hinge on incoming UK economic data and shifting market expectations around the path of BoE policy.
**Key Influences:**
– **UK Inflation:** While headline inflation has eased from 2022 peaks, underlying price pressures remain sticky. Core inflation, particularly in services, is elevated, prompting BoE officials to signal caution before considering rate cuts.
– **Growth Prospects:** UK GDP data in late 2023 pointed to stagnation, though a technical recession has so far been avoided. The labor market remains comparatively tight, but consumer activity is subdued.
– **Bank of England Outlook:** Markets largely expect the BoE to lower interest rates later in 2024, but timing remains uncertain. Recent official commentary has stressed vigilance against lingering inflation, with policymakers avoiding pre-committing to a specific easing timeline.
**BoE Rate Expectations:**
– Markets now price in the first 25 basis point cut for mid-2024, with further moves by year-end.
– A delay to cuts or more hawkish BoE rhetoric could support Sterling.
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### International Drivers: US Dollar and Fed Policy
While UK-specific factors are important, GBP/USD trends are heavily influenced by the direction of the US Dollar and Federal Reserve policy shifts.
**US Dollar Influences:**
– **Fed Rate Cuts:** After an aggressive tightening cycle, Fed officials signaled potential for multiple rate cuts in
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