*Original article credit: Currency News, source at currencynews.co.uk*
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**GBP to USD Forecast: Pound Sterling Nears Weekly High on Dovish Fed Signals**
*By Currency News Team*
The British Pound (GBP) has rallied strongly against the US Dollar (USD) in recent sessions, with the GBP/USD currency pair hovering near highs not seen since earlier in the month. This resurgence stems largely from signals emanating from the US Federal Reserve that suggest potential dovishness in its future monetary policy trajectory. Such signals have weakened the greenback broadly, granting the Pound further room to appreciate.
As financial markets digest a mixture of economic data and central bank commentary, traders and analysts are recalibrating their forecasts for the major currency pairs, particularly the GBP/USD duo. This piece delves into the factors underpinning the recent GBP/USD movements, forecasts from major institutions, and the economic data likely to drive future price action.
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### GBP/USD: Recent Trends and Performance
The GBP/USD rate has exhibited noteworthy volatility over the past month. After dipping to mid-November lows, Sterling staged a convincing rebound, briefly breaching the 1.25 level against the US Dollar. This momentum has primarily been driven by Dollar weakness rather than unambiguous Pound strength, although UK-specific events have provided some support as well.
– At the time of writing, the Pound stands at 1.249 against the Dollar, marking its highest performance in almost two weeks.
– The move higher in GBP/USD reflects greater confidence among traders that the Bank of England (BoE) will hold interest rates steady amid persistent inflation, while the Federal Reserve is increasingly expected to pivot to a more dovish stance in 2024.
– The currency pair is currently trading close to a pivotal technical level, with analysts focusing on whether it can consolidate above or below 1.25 in the coming days.
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### Underlying Drivers: Dovish Fed Signals
One of the chief catalysts for the Pound’s advance has been the shifting outlook on US monetary policy. Signals from the Federal Reserve, both from recent meeting minutes and comments by key policymakers, point to a softer approach on interest rate hikes.
#### Key Points on Fed Policy Shift:
– **Market Anticipation of Slower Rate Rises**: The latest release of Federal Open Market Committee (FOMC) minutes revealed a growing consensus within the Fed to pause further interest rate increases unless inflation surges again. The futures market now prices in a greater chance of interest rate cuts by the second half of 2024.
– **Fed Officials Voice Caution**: Several prominent Fed members have recently communicated a preference for a wait-and-see approach, implying that monetary policy may already be sufficiently restrictive to cool inflation.
– **US Economic Slowdown**: Recent US economic indicators, including consumer spending and manufacturing output, point to a moderation in activity. This aligns with the central bank’s guided cooling-off period and has put downward pressure on the US Dollar.
Market participants increasingly expect the Fed to shift its stance from tightening to neutral or even easing by late 2024. Such a dovish pivot would lower US yields and further erode the Dollar’s appeal relative to higher-yielding or more stable alternatives, including the Pound.
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### Bank of England’s Role and the UK Economic Picture
While Dollar weakness has been the dominant theme, UK-specific factors have also contributed to the Pound’s resilience. Crucially, the Bank of England remains committed to a cautious approach on interest rates in the face of stubborn inflation.
#### Factors Supporting the Pound:
– **Sticky UK Inflation**: Recent data from the Office for National Statistics (ONS) indicated that UK inflation continues to outpace the central bank’s 2 percent target, bolstering odds of a protracted period of restrictive monetary policy.
– **Steady British Economic Data**: While not spectacular, recent releases covering UK retail sales, services output, and labor market performance have generally beaten expectations.
Read more on GBP/USD trading.