**GBP/USD Price Holds 1.35 as Sterling Faces Fed Policy**
*By TradingNews.com Staff Writer | Source: TradingNews.com/news/gbp-usd-price-holds-1-35-as-sterling-faces-fed-policy*
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The British Pound (GBP) has maintained its footing above the 1.35 handle against the US Dollar (USD) amidst heightened currency market volatility and major monetary policy signals from the US Federal Reserve. As traders grapple with the shifting landscape in global central bank policies, GBP/USD price action remains oscillatory, caught between hawkish Federal Reserve rhetoric and persistent, though moderating, growth and inflation prospects for the UK economy. This article explores the current drivers of GBP/USD, the critical role of US monetary policy, and the technical landscape for the pair as the Sterling faces a pivotal juncture.
**Macro Backdrop: Dollar Strength and Sterling Resilience**
Persistent US Dollar strength has been a defining feature of the FX market throughout the post-pandemic recovery, underpinned by robust US economic data, safe-haven demand, and expectations of tighter policy from the Federal Reserve.
– **Federal Reserve Policy:** The FOMC has signalled a transition from ultra-loose monetary policy, with officials telegraphing a series of rate hikes throughout the year to quell inflation.
– **Yield Differentials:** The widening gap between US and UK bond yields has supported the greenback, drawing capital into USD assets.
– **UK Economic Outlook:** Growth and inflation remain elevated, but concerns are rising about future headwinds related to consumer demand, higher energy prices, and the lingering effects of Brexit.
Despite these pressures, the Pound Sterling has displayed notable resilience, benefitting from recent Bank of England rate hikes and residual optimism over post-pandemic economic normalization.
**GBP/USD Price Action: Finding Support at 1.35**
Sterling’s ability to maintain bids above the psychologically important 1.35 level against the Dollar is significant. This price floor has become a battleground for bulls and bears, reflecting the tug-of-war between domestic UK fundamentals and external USD drivers.
– **Recent Price Movements:**
– GBP/USD rallied toward the 1.37 zone after dipping below 1.32 during late-year volatility driven by Omicron fears.
– The pair has since retreated but remains buoyed above 1.35, a technical threshold watched by traders.
– Short-term rallies have been capped ahead of major resistance at 1.36 and 1.37, suggesting persistence of selling pressure on upticks.
– **Support Factors:**
– Bank of England’s proactive rate hikes have offered some policy divergence against the historically dovish US Federal Reserve.
– Upbeat UK economic data, particularly on employment and services sector growth, has underpinned Sterling demand.
– Technical buying interest at 1.35, reinforced by option expiries and positioning, has contained downside momentum.
Despite stabilizing above key support, the GBP/USD cross remains exposed to headline risk, particularly around US inflation data releases and Fed communication, which often trigger sharp moves in both Dollar and Treasury yields.
**The Federal Reserve’s Dominance: Tapering, Rate Hikes, and Risk Sentiment**
The Federal Reserve’s policy communication has emerged as the most important market driver for GBP/USD.
– **End of Tapering:** The Fed wrapped up its asset purchase tapering program earlier than anticipated, paving the way for rate hikes.
– **Interest Rate Outlook:** The market currently expects multiple rate increases through the coming quarters, reflecting the Fed’s resolve to fight inflation.
– **Inflation and Dot Plot:** Persistent high inflation, as seen in recurring CPI surprises, has forced the Fed to reassess its “transitory” narrative, with officials floating the prospect of more aggressive tightening if price pressures persist.
– **Market Volatility:** Each major Fed communication event, especially FOMC press conferences and the release of updated projections, tends to generate
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