**GBP/USD Forecast: Sterling Hovers Ahead of Fed and BoE Policy Updates**
*Original author: Giovanni Di Muro*
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### Introduction
The GBP/USD currency pair finds itself at a pivotal juncture as two significant central bank policy decisions loom on the horizon: the US Federal Reserve meeting and the Bank of England’s Monetary Policy Committee (MPC) announcement. In recent weeks, the British pound has demonstrated a resilient trend against the US dollar, underpinned by varying monetary policy expectations and macroeconomic indicators. However, as investors brace for updates from both sides of the Atlantic, the question on everyone’s mind is: What trajectory will Sterling take amid heightened market volatility?
This comprehensive article delves into the driving forces, technical outlook, and key themes shaping the GBP/USD landscape, synthesizing analysis originally presented by Giovanni Di Muro. We explore potential scenarios and crucial data points that traders and investors need to monitor closely over the coming sessions.
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### Macro Fundamentals: Central Bank Divergence in Focus
Global currency markets are increasingly dictated by central bank policy divergence, and this dynamic is especially palpable between the Federal Reserve and the Bank of England at this juncture.
#### The US Federal Reserve Perspective
– **Market Consensus Anticipates a Hold:** The majority of economists expect the Federal Reserve to leave its benchmark interest rate unchanged, holding within the target range of 5.25% to 5.50%.
– **Fed Chair Jerome Powell’s Tone:** What truly matters for currency markets is Fed Chair Jerome Powell’s tone during the press conference. An acknowledgment of weakening inflationary pressures alongside still resilient labor market data could shape expectations for the timing and magnitude of rate cuts in the back half of 2024.
– **Recent Economic Data:** US CPI has moderated, wage growth has shown signs of deceleration, and consumer sentiment remains far from euphoric. These factors collectively increase the possibility of the Fed adopting a more dovish stance relative to past meetings.
#### The Bank of England Outlook
– **MPC Split Decision Possible:** While the BoE’s MPC is expected to maintain the Bank Rate at 5.25%, there is increasing speculation about a split vote among MPC members. Some could vote for a cut, reflecting divergent views on inflation trajectories.
– **UK Inflation Turns a Corner:** Recent UK inflation data has been encouraging for bulls, with annual CPI coming in below 3%. However, core and services inflation remain stubbornly above target, posing a quandary for Threadneedle Street policymakers.
– **Labour Market Considerations:** The UK labour market remains tight, and wage growth is robust. This could persuade the BoE to exercise patience before embarking on a rate-cutting cycle.
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### The Sterling’s Recent Strength: Factors at Play
GBP/USD has outperformed several G10 currency pairs in recent months. This resilience stems from a confluence of local and global drivers.
– **Stubborn Services Inflation:** UK services inflation has remained stickier than anticipated, forcing markets to reassess the pace and extent of BoE easing. As a result, pound demand has stayed elevated.
– **Political Stability:** The landslide election victory of the Labour Party has removed a layer of political uncertainty, which is generally positive for Sterling’s risk premium.
– **Rate Differentials:** Shifts in market expectations regarding Fed and BoE policy have compressed rate differentials at times, underpinning GBP/USD.
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### What Are the Risks for GBP/USD?
As the Fed and BoE meetings approach, risks abound on both sides. Here are the main risks traders should price in:
#### Downside Risks
– **Hawkish Fed Surprise:** Should the Fed reiterate a commitment to “higher for longer,” or trigger doubts about near-term rate cuts, the US dollar could strengthen sharply, dragging GBP/USD lower.
– **BoE Dovish Pivot:** Any sign that the Bank of England is preparing for imminent rate cuts, particularly if more MPC members vote for an immediate cut
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