**GBP/USD Sinks to 1.3401 as Fed Strengthens Dollar**
*By TradingNews.com Staff Writer*
The British pound fell sharply against the US dollar, with the GBP/USD currency pair dropping to 1.3401 in the latest session. This marked a significant move, as the greenback surged across the board after the Federal Reserve reinforced its hawkish stance on monetary policy. The market reaction was immediate, with forex traders responding to both the Fed’s signals and ongoing macroeconomic uncertainties.
This article analyzes the drivers behind the recent plunge in GBP/USD, explores the broader market implications, and looks ahead to what traders can expect in the coming weeks.
**Fed’s Hawkish Shift Bolsters Dollar Strength**
The Federal Reserve’s policy meeting was the focal point for investors this week. In its statement and during the subsequent press conference, the Fed emphasized its commitment to fighting inflation, signaling the possibility of further interest rate hikes or a prolonged period of elevated rates. This hawkish tone startled forex markets, delivering a shot of adrenaline to the dollar and sending rival currencies—including the pound—sharply lower.
Key points from the Federal Reserve announcement include:
– **Interest Rate Policy**: The Fed left its policy rate unchanged, but communicated an openness to further hikes if inflation remains persistent.
– **Economic Projections**: Updated forecasts project higher-than-expected inflation and stronger growth, fueling expectations for tighter monetary policy through year-end.
– **Balance Sheet Reduction**: The Fed reaffirmed its commitment to reducing the size of its balance sheet, further supporting dollar liquidity.
– **Forward Guidance**: Central bank officials suggested rate cuts would not come as soon as many in the market had hoped.
As a result, the US dollar index climbed to multi-month highs, while Treasury yields surged. The market now sees a lower probability for rate cuts later this year, a dramatic shift from earlier expectations.
**British Pound Suffers Amid Domestic and International Concerns**
The pound’s drop was compounded by both external pressures from the stronger dollar and a set of domestic challenges in the United Kingdom.
Major factors include:
– **Weak UK Economic Data**: Recent data releases from the UK have disappointed, with GDP growth slowing and consumer confidence slipping.
– **Bank of England Dilemma**: The BoE faces a difficult balancing act, navigating between high inflation and flagging economic activity.
– **Political Uncertainty**: Ongoing political turbulence, coupled with concerns over Brexit-related trade frictions, adds another layer of volatility for sterling.
Market participants are increasingly skeptical over the UK’s prospects for robust growth, especially relative to the resilient US economy. This sentiment is reflected in capital outflows from UK assets and persistent downward pressure on the currency.
**Technical Analysis: GBP/USD Breaks Key Support**
From a charting perspective, the move below 1.3450 triggered additional selling in GBP/USD. Technical analysts highlight key factors:
– **Break of 100-Day Moving Average**: The pair sliced through this long-term trend indicator, often viewed by traders as a sign of further downside.
– **Momentum Indicators**: Oscillators such as the RSI (Relative Strength Index) moved into oversold territory, though not yet signaling a clear reversal.
– **Support and Resistance**: Immediate support is seen at 1.3400, with a further potential drop to 1.3350 and then 1.3300. Resistance looms at 1.3470 and 1.3550.
Trader sentiment has shifted dramatically, with short-term momentum clearly favoring the dollar over the pound.
**Broader Market Implications**
The drop in GBP/USD is part of a wider pattern in the currency markets, as investors reallocate portfolios in response to diverging monetary policies and economic trajectories.
Key trends include:
– **Dollar Strength Across G10 Currencies**: The euro, yen, and other major currencies have all weakened against the US dollar.
– **Safe-H
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