**Pound to US Dollar (GBP/USD) Forecast: Approaches 1.35 as ISM PMI Data Looms**
*Based on the original article by James Fuller, ExchangeRates.org.uk*
The British Pound (GBP) continues its steady advance against the US Dollar (USD), with recent movements pushing the GBP/USD exchange rate near the critical 1.35 level. This pace comes as investors focus on the next key event: the US ISM Purchasing Managers’ Index (PMI) release. Market participants remain keenly aware of core economic drivers on both sides of the Atlantic, particularly regarding expectations of monetary policy shifts, inflation trajectories, and potential GDP growth divergence through the rest of 2024 and into 2025.
## **Recap of Current GBP/USD Market Dynamics**
The GBP/USD pairing has witnessed significant volatility throughout 2024, shaped by contrasting monetary policies, diverging economic data, and fluctuating risk appetites. As of early September 2024, the following factors have come into play:
– Recent Bank of England (BoE) signals regarding potential interest rate cuts have weighed on Sterling, but resilient UK economic data has provided balance.
– The Federal Reserve, navigating a complex inflation picture, has remained cautious with its own rate cut timing.
– August data revised market expectations, narrowing the policy divergence between the two economies.
– Improved risk sentiment and inflow into UK assets have lent underlying support to the Pound.
– Technicals suggest Sterling is nearing an important resistance near 1.35, a level not seen for several months.
## **Key Drivers for the Pound Sterling**
The pound’s performance has been steered by both domestic fundamentals and external macroeconomic developments. Market attention has focused on several UK metrics:
### 1. **Bank of England Policy Outlook**
– The BoE has signaled some willingness to consider rate cuts if inflation slows sufficiently and broader economic risks materialize.
– However, recent inflation prints and a relatively resilient jobs market have allowed policymakers some time, limiting dovish market bets.
– Governor Andrew Bailey and other MPC members maintain that decisions will be driven by data, creating uncertainty and potential for volatility around upcoming releases.
### 2. **UK Economic Data**
– Growth readings have outperformed expectations, with Q2 GDP growth positive and service sector indicators rebounding.
– Wage growth remains high, contributing to services inflation, which remains a concern for the Bank of England.
– Consumer confidence and business investment have recovered from last year’s lows, supporting the currency.
– Headline CPI is moving gradually toward the BoE’s 2% target but remains sticky.
### 3. **Political Landscape**
– While domestic UK politics have settled somewhat, developments around the next general election could become relevant later in 2024 and into 2025.
– Markets watch for potential shifts in fiscal policy that could influence growth outlook or the UK’s external position.
## **Outlook for the US Dollar**
The US Dollar Index (DXY) has experienced its own fluctuations, shaped primarily by Federal Reserve communications and US macroeconomic data.
### 1. **Federal Reserve Interest Rate Path**
– The Federal Reserve’s focus remains on achieving its dual mandate of price stability and maximum sustainable employment.
– Despite progress in moderating inflation, policymakers have cautioned against easing rates too early, fearing a resurgence in price pressures.
– Market-based expectations for rate cuts have been pushed back from mid-2024 toward late in the year or even into early 2025.
### 2. **US Economic Fundamentals**
– Growth momentum has softened, with Q3 projections downgraded amid slowing consumer spending and investment.
– Job growth, though still positive, is showing tentative signs of slowing, and wage growth is moderating.
– Recent CPI and PPI releases have been mixed, giving the Fed some space but also prompting caution.
### 3. **Global Risk Sentiment**
– The US Dollar has historically benefited from safe-haven flows in times
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