**Pound to Dollar Forecast: Shutdown Stalemate Keeps GBP/USD Below 1.35**
*Original reporting by Tim Clayton, CurrencyNews.co.uk*
The foreign exchange (Forex) market continues to keep a close eye on the GBP/USD pair as ongoing political and economic developments in both the UK and the US shape trader sentiment. Despite periodic attempts at recovery, the pound sterling’s rally against the US dollar remains limited. The GBP/USD exchange rate consistently fails to break above the psychologically significant 1.35 level, and the current political stalemate in the United States alongside uncertain UK domestic fundamentals suggest near-term headwinds will persist.
## US Political Gridlock and Its Effects on the Dollar
The recent political impasse in Washington has become a central driver for global risk sentiment and dollar performance. The risk of a partial US government shutdown has rattled both equity and currency markets, with investors weighing how protracted negotiations and fiscal uncertainty could impact the outlook for Fed policy, the US economic trajectory, and global growth dynamics.
– **Shutdown Concerns:**
– Market participants anticipate that delays in reaching agreement on debt ceiling limits or government funding could trigger a temporary government shutdown.
– These budgetary standoffs historically lead to increased market volatility, as government spending is restricted and confidence in US governance is tested.
– Currency traders often seek refuge in the US dollar during broader bouts of risk aversion, underpinning the greenback during periods of heightened political drama.
– **US Dollar Performance:**
– The US dollar index (DXY) has found support from safe-haven flows as worries about a government shutdown escalate.
– However, a prolonged impasse could hurt growth expectations, possibly capping further dollar gains if the Federal Reserve signals a pause or a dovish shift due to mounting economic risks.
## UK Economic Picture: Mixed Data Keeps Sterling Under Pressure
While the US grapples with political theater, the UK faces its own set of challenges. The post-pandemic economic recovery remains patchy, and recent activity indicators highlight both resilience and vulnerability across sectors.
– **UK Economic Growth:**
– Recent data points to sluggish GDP growth. While certain industries, such as services, show improvement, manufacturing and construction remain under strain.
– Consumer confidence remains muted against the backdrop of rising living costs and concerns about job security.
– The Bank of England’s (BoE) cautious guidance reflects these uncertainties, with policymakers signalling that any tightening of monetary policy will be gradual and dependent on clearer signs of robust growth.
– **Inflation and Labour Market:**
– Inflationary pressures remain a major theme, with headline Consumer Price Index (CPI) readings still above the BoE’s target.
– Energy prices and supply chain disruptions add to near-term inflation risks.
– The UK labor market displays signs of recovery but wage growth remains relatively subdued, limiting the BoE’s scope for aggressive rate hikes.
## GBP/USD: Technical and Sentiment Analysis
The GBP/USD is highly sensitive to both macroeconomic fundamentals and shifting sentiment among investors. Technical analysis continues to highlight the significance of the 1.35 level as a key resistance zone, with multiple attempts to break above it faltering in the face of sell orders and global uncertainties.
– **Resistance and Support Levels:**
– Immediate resistance lies at the 1.35 handle, with a more substantial upside barrier near 1.3570.
– On the downside, support is seen near the 1.3360-1.3400 region, a level that has provided a floor during recent pullbacks.
– A decisive breach of these ranges, triggered by either domestic data surprises or resolution of US political gridlock, is likely to determine the pair’s near-term trajectory.
– **Investor Positioning:**
– Recent Commitment of Traders (COT) reports indicate that speculative long positions on sterling have scaled back, highlighting waning confidence in a sharp GBP rebound.
– Options
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