**Pound Sterling to Dollar Forecast: Pound Rebounds as Fed Rate Bets Intensify**
*Article adapted and expanded from the original reporting by CurrencyNews.co.uk team.*
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**Overview**
The British Pound (GBP) has demonstrated a notable rebound against the US Dollar (USD), spurred by shifting economic sentiment and intensifying speculation over future interest rate decisions by the Federal Reserve. This article provides a deep dive into the factors influencing the GBP/USD exchange rate, the recent performance of both currencies, perspectives from leading analysts, and a technical outlook for this key currency pair.
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**Key Drivers of GBP/USD Exchange Rate Movement**
1. **Federal Reserve Rate Expectations**
– Recent US economic data has pointed to slowing momentum in certain sectors, prompting market participants to speculate on the timeline and magnitude of potential Federal Reserve interest rate cuts.
– The Federal Open Market Committee (FOMC) has persistently maintained a hawkish rhetoric, citing the need for more evidence that US inflation is under control. However, a string of moderate data releases has begun to challenge the central bank’s narrative.
– As market expectations for an earlier rate cut increase, US Treasury yields have retreated, putting downward pressure on the dollar.
2. **UK Economic Data and Bank of England (BoE) Policy**
– The UK’s inflation profile has shown signs of improvement, but underlying measures remain sticky, and wage growth remains robust.
– The Bank of England has thus far been cautious, signaling that rate cuts are not imminent despite some market pricing for a potential move within the year.
– Recent economic indicators, including better-than-feared growth readings and resilient labor market data, have provided some support for the Pound.
3. **Global Market Sentiment and Risk Appetite**
– Broader shifts in risk appetite have played a role in GBP/USD’s recent volatility. When investors seek safety, the US Dollar typically benefits. Conversely, improved sentiment toward the UK or global economy tends to support the Pound.
4. **Relative Economic Performance**
– The divergence in economic performance between the UK and the US, particularly in terms of GDP growth and inflation, continues to influence currency movements.
– As the US economy cools and the UK avoids a hard landing, relative optimism about the British economy has contributed to Sterling gains.
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**Recent GBP/USD Exchange Rate Performance**
– At the start of the week, the GBP/USD pair rose sharply, recouping earlier losses and climbing back above 1.27, having reached multi-week lows in the previous sessions.
– The currency jumped as traders reevaluated the outlook for US rates, with expectations for Fed rate cuts pulling forward to as early as the fall.
– The latest movement marks a decisive shift from the dollar’s recent period of outperformance, reflecting changing sentiment in financial markets.
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**Analyst Perspectives**
1. **Market Pricing for Fed Rate Cuts Accelerates**
– According to Bloomberg data and CME FedWatch, market-implied probabilities for a rate cut at the next two FOMC meetings have grown higher, suggesting traders increasingly believe the Fed will act sooner rather than later.
– Expectations for a September rate cut have risen to over 70 percent among surveyed market participants, compared to less than 40 percent just a month prior.
2. **Bank of England Remains Cautious but Supportive**
– Analysts from ING note that the Bank of England appears reluctant to act too quickly in loosening monetary policy, given the risk of reigniting inflation.
– The BoE’s own communications have signaled a “wait and see” approach regarding inflation’s return to target, which could keep Sterling supported in the near term.
3. **Economic Data Divergence Supports Rebound**
– Nomura FX strategists observe that the recent outperformance of UK economic data relative to expectations, versus a cooling US jobs market and softer consumer spending, has reduced the fundamental advantage previously enjoyed by
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