**Pound to Dollar Forecast: GBP Struggles at Resistance, USD Faces Huge Fed Risk**
*Based on the original article by Tim Clayton, CurrencyNews.co.uk*
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The ongoing tussle between the British pound (GBP) and the US dollar (USD) continues to captivate forex traders, with both currencies facing significant influences from domestic and global economic developments. As markets closely monitor upcoming central bank decisions, particularly from the US Federal Reserve, GBP/USD has become locked in a standoff near critical resistance levels. The outcome of imminent Fed action could signal a major directional shift for this key currency pair.
This in-depth analysis explores the latest performance of GBP/USD, the macroeconomic factors shaping their movements, and what traders should watch as the Federal Reserve’s decisions loom large.
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### GBP/USD Performance Overview
After showing resilience and recovering from late-summer lows, GBP/USD recently tested crucial resistance levels but struggled to gain lasting traction. This hesitancy stems from uncertain risk sentiment, diverging central bank policies, and mixed economic data on both sides of the Atlantic.
– **GBP/USD’s recent movement has been characterized by:**
– Gains from sub-1.2600 lows, thanks to reduced market concern over UK recession prospects.
– Renewed stalling above the 1.2800 level, highlighting strong resistance.
– Volatile reactions to US data and shifting market expectations for the Federal Reserve.
While the pound found support as investors trimmed overly bearish UK growth forecasts, its upward mobility remains capped by persistent doubts over the Bank of England’s willingness to continue hiking interest rates and the daunting prospect of a still-hawkish Fed.
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### Sterling Struggles to Break Key Resistance
The pound’s inability to convincingly surpass technical resistance near 1.2800 against the dollar is noteworthy. Traders are closely observing this ceiling, as its breach could unleash a renewed momentum rally for sterling. However, fundamental headwinds have checked GBP’s progress.
– **Key resistance levels for GBP/USD:**
– 1.2800-1.2850 serves as a formidable barrier, capping advances through July and August.
– Previous attempts to push higher have faltered amid fading UK rate hike bets and resurgent dollar demand.
– Support is established near 1.2700, with significant downside risks on a break below.
**Technical analysts point out:**
– A daily close beyond 1.2850 could see GBP/USD target the 1.3000 region, but failure keeps the pair vulnerable to pullbacks and deeper corrections.
– Recent attempts to rally above resistance were met with strong selling pressure, indicating a cautious market stance ahead of the next major catalysts.
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### Diverging Economic Pathways: UK vs US
The underlying economic landscapes in the UK and US are diverging, which has critical implications for their respective currencies.
**UK Economy and Pound Fundamentals**
– Recent UK GDP data showed a better-than-feared performance, with a modest rebound in activity.
– Inflation remains elevated by international standards but has shown signs of peaking, prompting speculation that the Bank of England (BoE) may be nearing the end of its tightening cycle.
– The British labour market is cooling, with jobless claims creeping higher and wage growth appearing to slow, suggesting less need for further aggressive rate hikes.
**Market narrative on the UK:**
– The BoE has hiked rates aggressively in its fight against inflation, but many now expect further rises will be limited.
– Markets see the BoE’s policy rate peaking soon, eroding previous bullish tailwinds for the pound.
**US Economy and Dollar Fundamentals**
– The US has outperformed expectations, with robust consumer spending and a resilient jobs market.
– Core inflation is moderating, but economic activity remains strong enough to keep the Fed on notice.
– The Fed’s messaging remains hawkish, warning that more rate hikes might be needed to bring inflation sustainably back to target.
**Market narrative
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