**GBP/USD Weekly Forecast: Upbeat UK Data Pushing to 1.37 Ahead of FOMC**
*By Yohay Elam, adapted and expanded upon from the original article on Forex Crunch.*
The British pound (GBP) has managed to find solid ground against the US dollar (USD), with the GBP/USD pair scaling new heights driven largely by robust economic data from the UK. As the currency market gears up for a pivotal week featuring both UK and US catalysts, notably the Federal Reserve’s policy meeting (FOMC), traders and investors are keeping a close watch. The pair’s recent momentum brings 1.37 firmly into focus as a key psychological and technical level, with market sentiment trending bullish.
**GBP/USD Review: Recent Performance**
Last week, the GBP/USD climbed as high as 1.3745, its best level since April of the previous year. Several factors supported the pound’s rally:
– **Optimistic UK Economic Indicators**: The GDP print, retail sales, and other high-frequency data have painted a rosier picture for the UK economy.
– **US Dollar Weakness**: Although the Federal Reserve continues its tapering process and hints at multiple rate hikes, market skepticism about the US central bank’s hawkish resolve has weighed on the greenback.
– **Bank of England Positioning**: The prospect of further rate hikes from the Bank of England (BoE) continues to boost sterling demand, especially as the UK’s inflation problem persists.
While the pair has since eased from its highs, closing the week around 1.3680, the technical and fundamental setup remains bullish.
**Fundamental Drivers: Why Is the Pound Rising?**
The pound’s buoyancy is underpinned by several interwoven factors:
1. **Strong UK Macro Data**
The UK has delivered a series of better-than-expected economic results:
– **GDP Growth**: Latest data shows UK GDP expanded faster than expected in December, a sign that Omicron’s impact was less material than feared.
– **Employment Figures**: Jobless claims continue to fall, and wage growth remains elevated.
– **Retail Sales**: UK shoppers have held up spending levels, defying cost-of-living concerns.
– **Inflation**: The latest CPI reading surpassed BoE’s target, underlying urgent price pressures.
These indicators suggest the UK recovery remains on track, supporting expectations for continued policy tightening from the BoE.
2. **Bank of England Hawkishness**
The BoE has already raised rates twice since December and markets are increasingly pricing in further hikes. Hawkish commentary from central bank officials has underpinned this trend:
– **MPC’s Tone**: Monetary Policy Committee (MPC) members have reiterated that action must be taken to rein in inflation.
– **Market Pricing**: Futures suggest at least one more 25 bps hike is likely in the coming meetings, with some analysts expecting two.
3. **US Dollar Dynamics**
On the dollar side, there are countervailing pressures:
– **Fed Policy Path**: Markets have largely priced in a 25 bps hike at the next FOMC, but doubts remain about the breadth and speed of tightening.
– **Mixed US Data**: While job numbers are strong, other data including consumer sentiment and parts of the housing sector have been soft.
– **Inflation Moderation**: Recent US CPI releases show signs of moderating price growth, potentially reducing pressure on the Fed.
Skepticism about just how aggressive the Fed will be, especially with global economic clouds gathering, has capped the dollar’s gains.
**Technical Analysis: GBP/USD Levels to Watch**
GBP/USD is within touching distance of the 1.37 handle, a key hurdle, and several technical signals are worth noting:
– **Support and Resistance**
– **Immediate Support**: 1.3570, the
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