**GBP/USD Bounces on Post-Fed Dollar Weakness**
*Adapted from an article by Pablo Piovano, FXStreet*
The British Pound (GBP) has shown notable resilience against the US Dollar (USD) in the wake of the latest US Federal Reserve (Fed) interest rate decision, driving a sharp bounce in the GBP/USD currency pair. This article takes an in-depth look at the critical developments, the market’s reaction, and the technical and fundamental factors shaping the outlook for this major forex pair.
### Fed’s Dovish Turn: The Catalyst for Dollar Weakness
Financial markets had been bracing for the Fed’s July policy meeting, expecting a signal on the trajectory of interest rates for the rest of 2025. While the Federal Reserve opted to keep its policy rates unchanged, Chair Jerome Powell’s accompanying commentary triggered a significant market reaction.
**Key Takeaways from the Fed Meeting:**
– **Interest Rates Left Unchanged**: The Fed maintained the Federal Funds Rate at its highest level in over two decades, as widely anticipated.
– **No Imminent Rate Hike Signaled**: Powell explicitly stated that while there is a need to remain attentive to inflation pressures, the current monetary policy stance is now seen as sufficiently restrictive.
– **Possible Pause or Easing Ahead**: The door was left open for future easing, should inflation show encouraging signs of returning to the 2% target.
– **Market Reaction**: Yields on US Treasury bonds dipped, and the US Dollar Index (DXY) dropped, impacting all major currency pairs, including GBP/USD.
Powell’s tone was interpreted as less hawkish than previous statements, leading traders to trim bets on further rate increases and to start pricing in potential rate cuts as early as the first half of 2025. This shift fueled broad-based selling in the greenback.
### GBP/USD: The Immediate Reaction and Price Action
In the aftermath of the Fed’s policy announcement, GBP/USD experienced a sharp advance, bouncing off local lows and regaining ground above the 1.30 handle for the first time in weeks.
**Intraday Highlights:**
– GBP/USD rose nearly 1% in a volatile trading session, erasing earlier losses.
– The pair breached key resistance levels near 1.2970 and 1.3000.
– Sterling outperformed most G10 currencies during the American session.
This positive momentum was driven largely by US Dollar weakness rather than any fresh UK-specific catalysts, underscoring the pervasive influence of US monetary policy on global forex markets.
### Fundamental Drivers Behind the GBP/USD Move
While Fed-induced dollar weakness was the immediate catalyst, several underlying factors contributed to Sterling’s performance.
**Strengths Supporting the Pound:**
– **UK Inflation and Wage Growth**: Despite moderating headline CPI, wage inflation in the UK remains elevated, keeping the Bank of England (BoE) cautious about premature rate cuts.
– **Monetary Policy Divergence**: Markets perceive the BoE as more hawkish compared to the Fed, with bets on UK rates staying higher for longer.
– **Economic Data Surprises**: Better-than-expected UK economic figures in previous weeks have bolstered confidence in the British economy’s resilience.
**Risks and Limitations:**
– **Sluggish GDP Growth**: The UK economy faces headwinds from ongoing cost-of-living pressures, with quarterly GDP growth nearly stagnant.
– **Political Uncertainty**: The prospect of an early general election and lingering Brexit-related tensions could still weigh on Sterling in the medium term.
### US Dollar Outlook: A Turning Point
Following the Fed’s July decision, the US Dollar Index (DXY) retreated from 2025 highs, calling into question whether the multi-month trend of dollar strength is now over.
**Factors Influencing USD Direction:**
– **Interest Rate Path**: If the Fed maintains or signals an end to rate hikes, rate differentials with other major
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