**Pound to US Dollar Forecast: GBP/USD Near 1.35 as ISM PMI Looms**
*Based on the original analysis by ExchangeRates.org.uk team*
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**Overview**
The GBP/USD currency pair has continued to capture the attention of forex traders as it hovers near the 1.35 mark ahead of pivotal economic data, including the US Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI). This article delves into the driving forces behind the recent pound to dollar movements, evaluates the technical and fundamental landscape, and considers the potential trading scenarios as key macroeconomic data approaches.
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**Current Market Environment**
The foreign exchange markets have been marked by considerable volatility in 2024, particularly with the sustained movement in the GBP/USD pair. The British pound has faced various headwinds and tailwinds due to shifting interest rate expectations, evolving economic data, and geopolitical events, while the US dollar has responded to signals from the Federal Reserve and broader global risk sentiment.
– GBP/USD has trended higher, nearing 1.35 by early September 2025.
– The move coincides with market hesitation and cautious optimism regarding both UK and US economic prospects.
– Monetary policy divergence and incoming data are key influences on near-term price action.
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**UK Economic Backdrop: Cautious Optimism Versus Structural Challenges**
The United Kingdom’s economy has delivered a mixed message in recent quarters. While post-pandemic recovery momentum was strong in 2024, recent data suggest a plateau. Inflation, once a pressing issue for the Bank of England (BoE), has moderated, giving policymakers more flexibility.
Key Developments:
– UK CPI inflation has fallen closer to the BoE’s 2 percent target, removing pressure for aggressive rate hikes.
– The most recent GDP data shows modest expansion, but growth remains fragile.
– Labour market readings are mixed: headline unemployment is steady, but underlying wage pressures persist.
– Retail sales have stabilized after prior weakness, yet consumer sentiment remains historically subdued.
On the monetary policy front, the BoE signaled it would adopt a data-driven approach. Rate-setters have refrained from both hiking aggressively and easing prematurely, which has kept sterling supported against the US dollar as real interest rate differentials move in the pound’s favor.
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**US Dollar Dynamics: Resilient, But Facing Dovish Pressure**
The US dollar had a blockbuster year in 2022 and 2023, buoyed by rapid rate hikes from the Federal Reserve. However, the peak in rates and signs of an economic slowdown in 2024 moderated USD strength. The debate centers around when the Fed might move to cut rates and by how much.
Factors Shaping the Dollar:
– US inflation is trending lower but remains stickier than in some advanced economies, complicating the Fed’s job.
– Key indicators, such as the labor market and ISM PMIs, have shown resilience but hint at fading momentum.
– Dovish rhetoric from policymakers, coupled with market anticipation of eventual rate cuts, limits further dollar appreciation.
Traders keenly watch labor market data (like non-farm payrolls) and the ISM PMI for hints that could sway Fed policy and, by extension, USD value.
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**The Significance of the ISM PMI**
As one of the most closely watched US economic indicators, the ISM Manufacturing and Services PMIs offer a glance into the health of the American economy. Traders use these releases to gauge not only current conditions but also forward-looking business sentiment.
Significance:
– A reading above 50 signals expansion, below 50 contraction.
– Strong ISM data bolsters the case for protracted higher interest rates, supporting the dollar.
– Weak readings increase bets on Fed cuts, weakening the greenback and supporting GBP/USD.
The forthcoming ISM PMI is expected to be a major catalyst for market direction, particularly as it lands amidst data uncertainty and shifting central bank tone.
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**Technical Analysis:
Read more on GBP/USD trading.