**British Pound Short-Term Outlook: GBP/USD Rally Unravels Ahead of Fed**
*Based on the article by Fiona Cincotta, Senior Market Analyst, FOREX.com*
—
The British pound (GBP) surged to its strongest level in over a month against the US dollar (USD), finding support around 1.2800. However, a cooling rally has tempered bullish sentiment as investors brace for Wednesday’s pivotal Federal Open Market Committee (FOMC) rate decision. This article explores the fundamental and technical drivers influencing GBP/USD, factors investors should watch ahead of this week’s central bank meetings, and potential price action scenarios as the Fed’s communication proves crucial for short-term outlook.
## Recent Performance and Drivers
### GBP/USD Rally Stalls Ahead of FOMC
After a persistent climb that saw GBP/USD breach resistance near 1.2800, the pair has paused. The advance, which took the currency pair to its highest level since early June, unravels on growing caution as investors position for the Fed’s monetary policy announcement.
#### Key Drivers of the Recent Rally:
– **Weakening US Dollar:**
– Recent data has suggested the US economy, while steady, is cooling. This has dampened expectations for additional Fed tightening and placed downward pressure on the dollar.
– **Resilient UK Data:**
– UK economic data has proven unexpectedly robust, with June retail sales and CPI inflation both surpassing analyst forecasts, underpinning demand for sterling.
– **Risk Sentiment:**
– Global risk appetite has improved, benefiting risk-sensitive currencies like GBP, at the expense of the traditional safe-haven US dollar.
### Market Focus: Upcoming Central Bank Decisions
With the FOMC meeting front and center, market participants are looking to key signals that could alter the interest rate trajectory for both sterling and the dollar in coming months.
#### Major Events that Could Influence GBP/USD This Week:
– **Federal Reserve Rate Decision (Wednesday):**
– No change is widely expected, but the chair’s press conference and updated forecasts could impact rate expectations.
– **Bank of England (BoE) Policy Verdict (Thursday):**
– With the UK’s economic picture mixed, traders are split on whether the BoE will hike rates further or pause. The bank’s updated outlook on inflation and growth also carries weight.
– **US Data Releases:**
– In addition to the Fed, critical data such as Q2 GDP and core PCE inflation may sway the USD and thus GBP/USD.
– **Ongoing Geopolitical Risks:**
– Uncertainty around global growth and political turmoil, including Brexit-related headlines, can quickly trigger sharp volatility in the pound.
—
## Fundamental Analysis
### Federal Reserve Outlook
Expectations for the July FOMC meeting are largely set for a “hawkish hold.”
– **Fed Funds Rate Forecast (as of July):**
– Market consensus sees rates on hold at a 22-year high.
– Market attention focuses on guidance regarding a potential final rate increase in 2025 and any sign of a pivot towards easing.
– **Chair Jerome Powell’s Messaging:**
– Hawkish tones, warnings of persistent inflation, or data dependency can all trigger sharp USD swings.
– Dovish rhetoric about peaking inflation or heightened recession concerns may spark renewed risk-on trade, lifting GBP/USD.
### Bank of England Policy Risks
– **Current BoE Rate Stance:**
– The BoE has hiked rates in almost every meeting since late 2021.
– However, the UK’s inflation trend, coming off multi-decade highs, means markets are debating the likelihood of a further hike versus a policy pause.
– **Potential Outcomes:**
– A hawkish surprise from the BoE could ignite a fresh GBP rally, particularly against the greenback.
– Any dovish tilt or hints that the UK tightening cycle has peaked risks rapid downside for
Read more on GBP/USD trading.