**Pound to Dollar Forecast: Shutdown Stalemate Keeps GBP/USD Below 1.35**
*By Currency News*
**Current GBP/USD Outlook**
The British pound to US dollar (GBP/USD) exchange rate continues to endure persistent downward pressure as political gridlock in the United States stalls any decisive movement. Investors’ risk appetite remains subdued, keeping the pair consistently below the pivotal 1.35 barrier. Recent sessions have seen the pound struggle to regain ground against the greenback, underscoring the impact of macroeconomic and geopolitical uncertainties on foreign exchange markets.
**Key Factors Weighing on GBP/USD**
Several intertwined domestic and global factors are currently shaping the trajectory of the GBP/USD pairing:
– **US Government Shutdown Risk:** The possibility of a federal government shutdown in Washington looms large, unnerving global markets and boosting demand for the safe-haven US dollar.
– **Bank of England (BoE) Policy Outlook:** Market participants have downgraded expectations of an imminent BoE interest rate hike, as UK economic growth shows signs of stagnation and inflationary pressures moderate.
– **Federal Reserve’s Conservative Stance:** The Federal Reserve continues to signal higher for longer on US interest rates, a stance that has provided consistent support to the dollar across major pairs.
– **Global Risk Sentiment:** Renewed risk aversion, triggered by political wrangling and volatile economic data, has hampered currencies associated with higher risk, like the pound.
– **UK Economic Data:** Recent data releases on UK GDP and labor markets have failed to impress, raising further doubts about underlying economic strength and currency appeal.
**US Political Stalemate: Safe-Haven Dollar in Demand**
Legislative gridlock in the United States has captured the attention of currency traders worldwide. With key spending bills stuck in Congress and a government shutdown threat looming, investors have flocked to the safety of the US dollar. This demand is largely a function of the dollar’s status as the world’s reserve currency and traditional safe-haven asset. The result has been downward pressure on the GBP/USD exchange rate.
– **Reasons for Safe-Haven Demand:**
– The uncertainty surrounding US fiscal policies
– Potential disruptions to government services
– Risks to the broader US economic recovery
– Concerns over global spillover from US political instability
Market participants have noted that if the shutdown materializes, it could damage short-term US economic growth. However, history shows that these episodes tend to result in even greater demand for the dollar, as nervous investors seek stability during periods of heightened uncertainty.
**Bank of England Policy in Focus**
Recent communications from the Bank of England have taken a more cautious approach than previously expected. The UK central bank left interest rates unchanged at its latest meeting, citing persistent signs of economic slowdown and the potential for unemployment to edge higher.
The BoE’s reluctance to raise rates has contributed to sterling weakness, particularly as the gap with the Federal Reserve’s more hawkish outlook grows. Currently, the market expects the BoE to maintain a holding pattern for the rest of the year, and this has been reflected in weaker demand for the pound on global forex markets.
– **Key Messages from the BoE:**
– Inflation is easing, though remains above the bank’s 2 percent target
– Economic growth is flat or trending lower
– Employment data indicate a gradual cooling in the labor market
– UK housing and consumer confidence are subdued
**Federal Reserve’s Hawkish Resolve**
Counterbalancing the BoE is the Federal Reserve, which has maintained a resolute hawkish bias in the face of persistent inflation. Fed officials have signaled that higher rates could be here to stay through 2025, barring significant economic downturns. The Fed’s stance has underpinned elevated demand for US assets and continues to prop up the greenback.
In its most recent policy statements, the Fed emphasized:
– Core inflation remains too high for comfort
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