**Pound Sterling Forecast: Can GBP/USD Push Higher Before US GDP Data?**
*Based on content by Adam Solomon, CurrencyNews.co.uk*
The British Pound (GBP) has experienced a notable run in the forex markets in recent sessions, particularly in its pairing with the US Dollar (USD). As traders and investors position themselves ahead of the highly anticipated US GDP release, the key question being asked is whether the GBP/USD pair can continue its upward momentum or if a bout of profit-taking and renewed dollar strength might cap its advance.
This article provides an in-depth look at the fundamental and technical factors driving the GBP/USD exchange rate, the impact of recent UK and US economic data, and what to expect as the markets await one of the most significant US economic releases of the quarter.
## Sterling’s Recent Rally: Key Drivers
Sterling has shown impressive resilience against the US Dollar, bouncing back from dips and capitalizing on periods of dollar weakness. The following factors have underpinned this positive trend:
– **Improving Domestic Data**: Recent UK economic releases, while not uniformly upbeat, have generally surprised to the upside. This includes better-than-expected GDP figures, a resilient services sector, and stable wage growth.
– **Bank of England Policy Outlook**: The BoE’s cautious but steady stance has cemented expectations that UK interest rates will remain unchanged in the near term. This relative policy stability has supported GBP.
– **Easing Political Uncertainty**: The UK political landscape, while always subject to sudden changes, has shown signs of stability, removing a layer of risk that previously weighed on Sterling.
– **Weakening US Dollar Trend**: The US Dollar Index (DXY) has come under pressure as investors bet the US Federal Reserve is at, or very near, the end of its rate-hiking cycle.
## Recent UK Economic Data
The outlook for GBP/USD has benefited from a series of data releases that paint the picture of a nuanced but growing UK economy.
### GDP Growth
– Q2 GDP figures came in ahead of expectations, with the UK economy expanding at a modest pace.
– The services sector, a dominant driver of UK GDP, continued to post gains, offsetting weakness in industrial and construction sectors.
– Resilience in household spending despite elevated interest rates suggests underlying confidence, although this remains vulnerable to future cost-of-living pressures.
### Labor Market Conditions
– UK wage growth has remained robust, with average earnings outpacing inflation. This has supported consumer spending and provided a buffer against higher borrowing costs.
– The unemployment rate has edged only slightly higher, suggesting the labor market is absorbing the impact of tighter monetary policy relatively well.
### Inflation and Monetary Policy
– While headline inflation has receded from its multi-decade highs, core price pressures persist, keeping the Bank of England (BoE) on high alert.
– Financial markets are pricing in limited prospects for further BoE rate hikes, focusing instead on when rate cuts may materialize.
– Importantly, BoE rhetoric has leaned somewhat hawkish, emphasizing the need to see “sustained” evidence of falling inflation before signaling a policy pivot.
## The Dollar Side of the Story
Sterling’s strength has come in the context of a broader dollar softening, with several global factors coming into play.
### Federal Reserve Communication
– The Federal Reserve has signaled greater caution in its forward guidance. While it has not ruled out further rate increases, the bias is clearly shifting toward an extended pause.
– US economic data—particularly from the labor market and inflation prints—have been mixed. This has fueled speculation about the timing of any Fed rate cuts, adding uncertainty to the dollar outlook.
– Long-term US Treasury yields have eased from recent peaks, further undermining the dollar’s yield advantage.
### Risk Appetite and Safe Haven Flows
– Equities and risk assets have enjoyed renewed demand, diminishing safe-haven flows into the greenback.
– Geopolitical tensions and supply
Read more on GBP/USD trading.