*Original source: Haresh Menghani, FXStreet*
**GBP/USD Trades with Positive Bias Above 1.3300 Amid Softer USD; Upside Seems Limited**
The GBP/USD currency pair has been trading with a modest positive bias as it pushes beyond the 1.3300 mark during the Asian session on Friday. The primary driving force behind this movement appears to be a softer US Dollar (USD), which continues to lend some support to the British Pound (GBP), while traders remain cautious due to broader macroeconomic and fiscal developments. Despite the cable’s attempts to climb further, the upside momentum remains somewhat capped in light of several persistent challenges and uncertainties facing the currency pair.
This detailed analysis examines the current dynamics affecting GBP/USD, the underlying reasons for the pair’s limited upside, and prospects for the coming sessions.
**Forex Market Overview: GBP/USD’s Current Trajectory**
– The GBP/USD pair extends its positive trend above 1.3300, largely benefitting from renewed selling pressure around the USD.
– The US Dollar index (DXY), which tracks the USD against a basket of major currencies, is trading on the back foot as markets digest a less-hawkish stance from the Federal Reserve.
– The British Pound also receives some support from easing political uncertainty in the UK, though the outlook is far from clear-cut.
– Both technical and fundamental factors prevent a sustained breakout above key resistance levels for GBP/USD.
**Factors Supporting the GBP/USD Upside**
**1. Softer US Dollar Environment**
A noticeable downtrend in the USD has been observed, supporting major currencies including Sterling:
– The Federal Reserve remains cautious about its policy tightening path amid signs of moderating inflation and recent weaker US macroeconomic data.
– The US GDP growth for Q3 was revised slightly lower, while labor market indicators have softened, tempering fears of more aggressive rate hikes in the near term.
– US Treasury yields have moderated, reducing the attractiveness of the greenback relative to its peers.
– This softer USD environment has allowed GBP/USD to recapture ground lost in previous sessions, with buyers showing resilience above the psychological 1.3300 barrier.
**2. Calmer Political Backdrop in the UK**
– Recent weeks saw significant turmoil in UK politics, culminating in Rishi Sunak taking over as Prime Minister.
– Market reaction to Sunak’s appointment has been broadly positive, with the British Pound recovering from historic lows posted in late September and early October.
– Sunak’s promises of fiscal discipline have eased concerns about the UK government’s ability to maintain market credibility in the face of soaring inflation and slowing growth.
– Chancellor Jeremy Hunt’s upcoming fiscal statement is expected to provide further clarity, with the market hoping for a pragmatic approach to tax and spending.
– The decrease in political risk premiums has supported demand for UK assets, including Sterling.
**3. Technical Factors and Short-Covering**
– The GBP/USD pair found consistent support near the 1.3250-1.3270 zone, triggering a fresh wave of buying as short-term traders covered positions.
– A break above immediate resistance at 1.3300 encouraged further technical buying, though follow-through momentum has been limited.
– Momentum oscillators on the four-hour and daily charts indicate that while upward potential exists, bulls appear hesitant to commit to larger positions ahead of key upcoming events.
**Headwinds Limiting GBP/USD Upside**
Despite near-term gains, several factors continue to constrain the Pound’s upside potential in the current environment.
**1. Uncertainties Around UK Fiscal Policy**
– The UK government continues to face a significant budget deficit, and the November budget is expected to include spending cuts and potential tax increases to restore fiscal discipline.
– Fiscal tightening, though necessary, raises the risk of tipping the UK economy into recession or at the very least slowing growth further.
– The Bank of England also remains in a difficult position, as it must balance the need to tame inflation with the risk of undermining growth.
Read more on GBP/USD trading.