**GBP/USD Price Forecast: Sterling Holds 1.35 as Fed Pivot Offers Shelter from UK Fiscal Strain**
*By Justin McQueen, TradingNews.com*
**Introduction**
The British pound (GBP) has shown impressive resilience against the US dollar (USD), holding firm around the key 1.35 level, according to recent trading activity. This stability comes amid a backdrop of considerable fiscal strain in the United Kingdom, with traders weighing domestic challenges against shifting global monetary policy expectations. A notable factor providing support to the sterling is the perceived softening stance from the US Federal Reserve, often referred to as the “Fed pivot,” which has started to tilt market sentiment in favor of risk assets and non-dollar currencies.
**Recapping GBP/USD Volatility**
Over recent months, the GBP/USD pair has seen a series of sharp moves. The cross encountered downward pressure as investor focus turned to the UK government’s fiscal situation, with concerns over rising public sector borrowing and uncertainty over the country’s economic outlook. However, sterling has managed to avoid a deeper selloff, and even attempted notable rallies, primarily due to evolving expectations around US monetary policy.
Key drivers shaping GBP/USD’s price action include:
– Persistent UK fiscal worries tied to higher government spending and inconsistent economic data.
– Receding fears of aggressive US rate hikes as the Fed indicates a possible pause or slower pace in tightening monetary policy.
– Global risk appetite rebounding, thereby reducing safe-haven flows into the dollar.
**Fed Pivot: A Shield for Sterling**
The US Federal Reserve has been the dominant force dictating global FX trends throughout the past several quarters. Initially, the Fed’s hawkish tone, marked by rapidly rising interest rates, sent the greenback soaring against most currencies. However, a change in narrative is now surfacing, as policymakers signal that peak rates may soon be reached, potentially followed by rate cuts if inflation continues to moderate.
This so-called Fed pivot carries several implications for the GBP/USD pair:
– *Diminished Dollar Appeal*: As rate hike expectations subside, demand for the higher-yielding US dollar wanes, making other majors like sterling relatively more attractive.
– *Relief for Risk-Exposed Assets*: With less pressure from dollar strength, currencies tied to riskier or vulnerable economies, such as the UK, enjoy a buffer from global capital flows.
– *Inversion of Prior Trends*: The strong dollar theme is beginning to unravel, allowing undervalued currencies to claw back some of the ground lost during the previous upcycle.
**UK Fiscal Challenges Still a Cloud Over Sterling**
Despite the near-term support provided by the Fed’s policy turn, the British pound faces lingering headwinds from domestic developments. The UK’s fiscal picture has come under renewed scrutiny from investors and credit agencies alike due to rising debt levels and questions over the government’s ability to implement credible deficit reduction strategies.
Several factors underscore the UK’s fiscal fragility:
– *Ballooning Borrowing*: UK government borrowing remains at elevated levels following the COVID-19 pandemic and subsequent energy market interventions.
– *Policy Uncertainty*: Persistent changes in fiscal policy direction, including u-turns on tax plans and spending proposals, have injected volatility into gilt markets and undermined confidence.
– *Stalling Growth Outlook*: GDP releases and forward-looking indicators point to a challenging growth environment, with the UK set to lag major peers in economic expansion.
Economists and market commentators warn that the fiscal strain limits the pound’s upside, particularly if external support from the Fed and global risk sentiment starts to wane.
**Technical Analysis: Key Levels and Price Action**
A technical perspective offers valuable insights into the near-term prospects for GBP/USD. As the currency pair hovers near 1.35, traders are closely watching for confirmation that this support zone can become a springboard for further gains or if renewed weakness will cap sterling’s ambitions.
Important technical dynamics include:
– *Strong Support at 1.35*: The 1.35 handle has historically acted
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