**Following a Hawkish Fed Stance, GBP/USD Declines for Third Consecutive Day Below 1.32**
*Original Author: VT Markets*
The British pound (GBP) continues its downward trajectory for a third straight session against the US dollar (USD), falling firmly below the 1.32 handle. The move comes amid persistent dollar strength following the Federal Reserve’s notably hawkish signals on the future path of interest rates and assertive guidance during the latest Federal Open Market Committee (FOMC) meeting. This article delves into the factors driving the GBP/USD exchange rate lower, analyzes economic data shaping the currency pair, and examines the outlook for traders and investors.
## **Hawkish Fed Signals Trigger Broad-based Dollar Strength**
The Federal Reserve’s June meeting cemented a narrative of persistent monetary tightening. Despite not changing the Federal Funds rate and pausing for the first time after ten consecutive hikes, the dot plot and Fed Chair Jerome Powell’s commentary strongly suggested that more tightening is likely before the year closes.
**Key Points from the FOMC Meeting:**
– **Rate Projections:** The Fed’s dot plot showed that the majority of policymakers now expect two additional 25-basis-point rate hikes in 2024.
– **Inflation Outlook:** Chair Powell and the committee emphasized that while inflation has moderated, it remains significantly above the Fed’s 2% target, warranting further measures.
– **Labor Markets:** The FOMC noted ongoing strength in the labor market, providing the Fed with a buffer to continue tightening without immediate recession risks.
– **QT Continuation:** The Fed maintained its quantitative tightening (QT) policy, continuing balance sheet reduction.
The reaction from market participants was swift. Treasury yields rose, risk sentiment soured, and the US dollar surged, reflecting expectations of relatively higher rates in the US compared to other advanced economies over the coming quarters.
## **GBP/USD: Technical Breakdown Underlines Dovish Pressure on Sterling**
The GBP/USD pair had previously benefited from UK inflation readings that beat forecasts and from the Bank of England’s (BoE) own tightening cycle. However, against the backdrop of a newly emboldened dollar, the sterling’s recent outperformance has begun to wilt.
**Recent Technical Developments:**
– **Downtrend Initiation:** GBP/USD began its descent from the mid-1.26s early in the week, accelerated by the Fed’s hawkish pivot.
– **Break Below 1.32:** Key support at 1.32 decisively gave way, inviting further momentum-based selling and triggering stop-loss orders.
– **Momentum Indicators:** Daily charts reveal increasing bearish momentum, with the Relative Strength Index (RSI) turning lower and MACD (Moving Average Convergence Divergence) crossing into negative territory.
**Major Support and Resistance Levels:**
– **Immediate Support:** 1.3150 area, a region of prior demand and Fibonacci support.
– **Deeper Support:** 1.3080, the late May swing low.
– **Resistance to Watch:** The 1.3250–1.3300 region is now seen as resistance. A break and sustained move above this level would be required to neutralize the bear bias.
Technical sentiment now aligns with fundamental headwinds for the pound, raising the risk of further declines in the near term.
## **Divergence in Central Bank Policies: Fed vs BoE**
Recent sessions underscore the divergence between the Federal Reserve and the Bank of England. While both central banks remain committed to taming inflation, the US appears positioned for further monetary tightening, whereas the UK’s rate trajectory is growing more uncertain.
**Fed Policy Stance:**
– Explicit willingness to hike rates further if inflation proves sticky.
– Powell’s communication signals patience and a lack of concern about overtightening, given robust employment data.
**BoE Policy Outlook:**
– Markets anticipate a 25-basis-point hike from the BoE at its June meeting
Read more on GBP/USD trading.