**GBP/USD Price Holds 1.35 as Sterling Faces Fed Policy**
*Author: Trading News Team (Credit: www.tradingnews.com)*
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The foreign exchange market continues to react sharply to central bank decisions and macroeconomic shifts, with GBP/USD trading displaying notable resilience around the 1.35 mark. As Sterling attempts to consolidate this critical level, it faces a confluence of transformational events driven primarily by divergences in monetary policy between the Bank of England (BoE) and the US Federal Reserve (Fed). This article, based on the analysis and reporting from the Trading News Team, explores the factors influencing GBP/USD price action, highlights key technical and fundamental drivers, reviews market expectations, and provides insight into what may lie ahead for this major currency pair.
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## Overview: GBP/USD Price Action Around 1.35
The GBP/USD currency pair, often known as “Cable,” has largely held above the psychological and technical support level of 1.35 in recent sessions. While price action reflects bouts of volatility, Sterling’s capacity to withstand ongoing pressure from US rate hikes has become a focal point for traders and investors.
### Key Features of Recent Price Action:
– GBP/USD remains anchored in a relatively tight range, resisting sustained breaks below 1.35.
– Short-term volatility has increased in response to unexpected Fed communications and UK macroeconomic releases.
– Price movement suggests bullish attempts to reclaim higher territory but remains constrained by Dollar strength, especially during periods of risk aversion.
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## Central Bank Policy Divergence: The Main Driver
The foremost factor dictating the GBP/USD exchange rate is the evolving divergence in monetary policy between the BoE and the US Fed.
### US Federal Reserve Positioning:
– The Fed has embraced a more hawkish stance, with accelerated tapering of asset purchases and guidance signaling multiple interest rate hikes through 2024.
– Markets have priced in as many as three to four rate increases this year, with concerns about inflation persistence in the US.
– Elevated US bond yields and a rotation toward Dollar-denominated assets have kept the US Dollar Index (DXY) on demand.
### Bank of England Actions and Guidance:
– The BoE surprised markets by hiking rates earlier than anticipated, citing elevated inflation and tight labor market conditions.
– Expectations for additional rate increases have lifted the Pound, but uncertainty remains regarding the pace and extent of normalization.
– Policy messaging and economic projections have at times been inconsistent, creating ambiguity around forward guidance.
### Implications for GBP/USD:
– When the Fed is seen as aggressively tightening, Dollar strength typically weighs on GBP/USD.
– If the BoE signals it will not fall behind the Fed in terms of rate hikes, Sterling can stage a recovery against the Greenback.
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## Macroeconomic Fundamentals at Play
The interplay of macroeconomic results in the US and UK continues to shape sentiment toward Sterling and the Dollar.
### UK Economic Data:
– **Inflation:** The UK has experienced higher-than-expected Consumer Price Index (CPI) prints, supporting the argument for tighter BoE policy.
– **Employment:** Labor market data has shown resilience, with wage growth and jobless rates both influencing BoE decisions.
– **Growth Concerns:** Fears of slower economic growth during periods of stricter Covid-19 controls, as well as lingering Brexit after-effects, have at times capped Sterling upside.
### US Economic Backdrop:
– **Inflation Pressures:** US inflation has surged to multi-decade highs, underlining the Fed’s urgency in addressing price stability.
– **Labor Market:** The US jobs market recovery appears robust, with improving non-farm payrolls and declining unemployment.
– **Growth Momentum:** The US economy shows relatively strong momentum, reinforcing the Fed’s tightening bias.
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## Technical Outlook: GBP/USD at a Significant Juncture
From a chart perspective, the 1.35 area represents an important baseline for GBP/USD. A sustainable move above or below this level will influence the pair’s
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