**GBP/USD Retreats Below 1.32 for Third Straight Day Amid Hawkish Fed Outlook**
*By VT Markets Analysts*
The British Pound has taken a hit against the US dollar, tumbling for a third consecutive session below the key psychological level of 1.32. This decline is largely driven by the intensifying hawkish signals from the Federal Reserve, which have spurred renewed strength in the dollar and triggered risk aversion across global financial markets.
This comprehensive analysis delves into the underlying drivers behind GBP/USD’s decline, examining macroeconomic factors, central bank dynamics, market sentiment, and the technical landscape shaping the pair’s outlook.
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## The Fed’s Hawkish Turn: A Catalyst for Dollar Strength
The most significant theme impacting FX markets this week has been the Federal Reserve’s pivot to a more hawkish stance on monetary policy. In its latest policy meeting, the FOMC signaled that it could proceed with further interest rate hikes in coming months if inflationary pressures persist.
**Key Takeaways from the FOMC Statement:**
– The Fed left its benchmark interest rate unchanged at 5.25-5.50 percent.
– FOMC policymakers emphasized ongoing concerns about persistently high inflation, especially in services and shelter.
– The dot plot showed a majority of members expecting at least one more rate hike in 2024, with a slower pace of rate cuts anticipated in 2025 compared to previous projections.
– Chair Jerome Powell underscored the Fed’s data dependency and vowed to keep policy “sufficiently restrictive” until there is clear evidence that inflation is sustainably moving back to the Fed’s 2 percent target.
The immediate effect of the hawkish messaging was a broad-based advance in the US dollar. Treasury yields surged, with the 2-year note rising toward its highest level since late 2023. This jump in yields supported the dollar across developed and emerging market currencies.
## GBP/USD Under Pressure: Recent Performance
The GBP/USD pair steadily declined in the wake of the FOMC meeting, breaking below 1.32 and extending losses through the remainder of the week. The pair is now trading at its lowest level since May, down more than 1.5 percent from its recent peak.
**Recent Performance Highlights:**
– Three consecutive days of declines, eroding all gains registered earlier in the month.
– The pair has breached both the 50-day and 200-day exponential moving averages, reflecting the shift in market sentiment.
– Daily trading volumes have ballooned, indicating increased participation as traders position for further volatility.
## Divergent Central Bank Paths: Bank of England vs. Federal Reserve
While the Federal Reserve adopts a resolutely hawkish tone, the Bank of England (BoE) occupies a more cautious and neutral stance. This central bank divergence has added further downward pressure on GBP/USD.
**Bank of England Positioning:**
– At its latest policy meeting, the BoE left interest rates steady at 5.25 percent, in line with expectations.
– The Monetary Policy Committee (MPC) split was marginally dovish, with some members signaling readiness to support cuts should activity data weaken significantly.
– BoE Governor Andrew Bailey acknowledged the tightrope between fighting inflation and supporting subdued economic growth.
**Consequences for Sterling:**
– The softer stance contrasts sharply with the Federal Reserve, reinforcing the dollar’s yield advantage over sterling.
– Rate differentials now favor the USD, encouraging capital inflows into US dollar-denominated assets at the expense of the pound.
## UK Macro Backdrop: Mixed Signals
The UK economy faces a challenging environment as inflation remains stubbornly high, yet growth momentum has stalled. Earlier optimism about robust services sector expansion has faded amid signs of cooling activity.
**UK Economic Data Recap:**
– Headline CPI remains above 3 percent, fueled by elevated food and energy costs.
– Wage growth has moderated, but still outpaces inflation in several sectors.
– Consumer confidence dipped anew
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