**Pound to Dollar Forecast: Can GBP/USD Break 1.35 as FTSE Hits Record Highs?**
*By Tim Clayton, CurrencyNews.co.uk*
The British pound (GBP) has displayed significant resilience and upward momentum against the US dollar (USD) in early 2024, stirring debates among analysts and traders about the sustainability of the rally and whether the key 1.35 level can be breached. Concurrently, the UK equity market, as represented by the FTSE 100 index, has achieved record highs, seemingly defying prolonged concerns over the domestic economy. This article provides an in-depth analysis of the drivers behind the pound’s recent gains, the factors influencing the GBP/USD outlook, and the potential scenarios for the pair in the coming months.
## Pound Sterling: Buoyant Amid Economic and Monetary Crosscurrents
The British pound’s performance in 2023 and the early part of 2024 has been characterized by a notable degree of volatility, yet it has managed to outperform many of its G10 peers. Several factors underpin this resilience:
– **Relative economic stability:** After months of concerns around stagnation and recession, the UK economy posted positive surprises in headline data, especially in the labour market and GDP growth for Q4 2023.
– **Diminishing expectations of aggressive Bank of England (BoE) rate cuts:** Persistent inflation, particularly in services, has forced the BoE to adopt a more hawkish tone despite slowing economic growth.
– **Foreign investment inflows:** The FTSE 100’s strong performance has encouraged foreign capital to flow into UK assets, lending support to the pound.
Many market participants had positioned for a weaker pound in 2023 on the expectation that the UK would lag its peers in growth and would see rate cuts ahead of the US Federal Reserve. Instead, data and rhetoric have confounded these expectations, causing a marked reassessment among investors.
## FTSE 100’s Surge: Implications for the Pound
The FTSE 100 index saw breakout performance, hitting new record highs. This rally coincided with growing risk appetite globally, but also reflected a reassessment of the UK value proposition:
– **Attractive valuations:** UK equities had historically traded at a discount to other major markets, making them appealing as investors rotated out of pricier US and European stocks.
– **Strong performance of key sectors:** UK indices are heavily weighted towards energy, mining, and financial companies, all of which have benefited from global trends, including commodity price strength and hopes for improved margins as rate concerns fade.
– **Weaker pound previously favored exporters:** The pound’s previous weakness made UK companies more competitive internationally, helping drive revenues and earnings that supported share prices.
While historically a rising FTSE can at times coincide with a weaker pound—due to repatriation of foreign earnings—recent months have shown both asset classes rising in tandem, reflecting renewed international confidence in UK PLC.
## GBP/USD: Key Technical and Fundamental Levels
The GBP/USD currency pair, colloquially known as “cable,” is an important risk proxy and one of the most heavily traded exchange rates globally. At the outset of 2024, the pair found strong buying interest, challenging the 1.28 and 1.30 barriers. Further advances raise the possibility of a move towards the psychologically significant 1.35 threshold. Key questions arise:
1. **Is this rally sustainable, or is a correction due?**
2. **What are the macroeconomic and technical factors to watch?**
3. **How does monetary policy divergence impact the outlook?**
### Technical Analysis: Can 1.35 Be Reached?
Technical traders closely monitor a series of chart indicators and price patterns to gauge momentum and set trading strategies:
– **Previous peaks and resistance zones:** GBP/USD last traded above 1.35 in the spring of 2022. Strong supply is expected in the area between 1.33 and 1.35,
Read more on GBP/USD trading.