**Pound Sterling Forecast: GBP/USD Drifts at 1.35 Ahead of Key Inflation Data**
*Original article referenced from CurrencyNews.co.uk, authored by Tim Clayton.*
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The Pound Sterling has approached a pivotal moment as markets await fresh UK inflation data that could significantly influence the GBP/USD currency pair’s movement in the coming days. As of the time of writing, GBP/USD has been trading near the 1.35 level, characterized by relatively subdued volatility and tight trading ranges. This article provides a comprehensive analysis of the Pound’s current situation, key drivers affecting sterling, upcoming risks and data points, technical outlooks, and what to watch for owners of both GBP and USD.
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### Recent Performance: GBP/USD Drifts Near 1.35
The British Pound’s path through September has been defined by a lack of decisive momentum. GBP/USD, in particular, has settled just above 1.35, wrestling with both domestic and international pressures. Several themes have shaped the pair’s recent performance:
– **Range-Bound Trading:** The Pound-to-Dollar rate has traded within a rather narrow band, with buyers and sellers both wary of taking strong positions ahead of potential catalysts.
– **Cautious Sentiment:** Currency traders are holding back from major bets until they observe the impact of UK inflation data and comments from central banks.
– **Broader Market Influences:** The US Dollar’s own behavior, shaped by Federal Reserve expectations and global risk sentiment, has affected the GBP/USD direction.
The Pound has not only remained under the lens because of domestic factors but also due to its role as a risk-sensitive G10 currency. The equilibrium found near 1.35 is the result of counteracting forces from both sides of the cross.
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### Key Drivers for the Pound Sterling
GBP/USD continues to be influenced by a variety of interconnected economic and market developments. Some of the most significant drivers include:
#### 1. UK Economic Outlook
– **Reopening & Recovery:** Even as the UK economy has reopened substantially following the Covid-19 pandemic, supply-side challenges, labor shortages, and higher input costs have weighed on sentiment.
– **Growth Moderation:** Faster growth following reopening has begun to slow, as pent-up demand fades while persistent headaches in logistics and global supply chains limit further acceleration.
– **Fiscal Policy:** The UK government has signaled that significant new fiscal support is unlikely, shifting more focus to the outlook for monetary policy and organic economic momentum.
#### 2. Inflation and Bank of England Policy
– **Inflation Pressures:** Recent months have seen inflation trending above the Bank of England’s 2 percent target, driven by energy prices, supply constraints, and higher costs in hospitality and services.
– **Policy Expectations:** Traders have priced in the possibility of Bank of England tightening, weighing the odds of a rate hike versus a “wait and see” approach as the MPC attempts to navigate transitory versus persistent inflation.
– **Rate Hike Timing:** The debate over rate hike timing is central for GBP valuations. A sooner hike supports sterling, while an indefinite delay would open the door for further downside.
#### 3. US Dollar Dynamics
– **Federal Reserve Policy:** The Fed’s plans for tapering asset purchases and the prospect of moving towards rate hikes in 2025-2026 have underpinned USD demand.
– **Risk Appetite:** As a safe haven, the Dollar often benefits when global risk sentiment falters. Episodes of equity market stress or economic doubts contribute to short-term USD strength versus sterling.
– **Yield Differentials:** The gap between US and UK bond yields can also sway capital flows and affect the GBP/USD rate.
#### 4. Brexit and Political Uncertainties
– **Ongoing Frictions:** While the UK and EU reached a trade deal, unresolved issues related to Northern Ireland, regulatory alignment, and the domestic political landscape remain sources of sporadic volatility.
– **Trade Disruptions:** Actual and feared trade bottlenecks
Read more on GBP/USD trading.