**GBP/USD Price Forecast: Pound Holds Above 1.34 as Fed Cut Bets Offset BoE Dovish Pressure**
*By Trading News Staff*
*(Credit: TradingNews.com)*
The GBP/USD currency pair has managed to retain its footing above the 1.34 mark, a level that has become a key battleground for traders amidst shifting global monetary policy expectations. While recent dovish signals from the Bank of England (BoE) have weighed on sterling, speculators’ mounting bets on Federal Reserve interest rate cuts have provided a floor for the pair, balancing some of the downward pressure on the pound.
In this extended analysis, we delve into:
– Recent performance and key technical levels for GBP/USD.
– The dual influence of Fed and BoE policy outlooks.
– Economic factors shaping both sides of the currency.
– Market sentiment, positioning, and risks for the remainder of 2024.
– Technical analysis and forecast scenarios.
**GBP/USD Recent Performance: Resilience Amid Policy Crosscurrents**
The GBP/USD pair has exhibited notable resilience in recent sessions, repeatedly finding support above the 1.34 handle. This stability comes despite challenges to the UK outlook and a more cautious stance by the BoE, which have threatened to cap sterling’s gains.
– As of the latest data, GBP/USD is trading just above 1.34, recovering from lows not far below this level.
– Price action has reflected a complex push-pull dynamic: the BoE’s dovish commentary is offset by investors’ growing conviction that the Federal Reserve will cut US interest rates later in 2024.
– Year-to-date, the pound has managed to gain ground against the dollar, buoyed by relative UK growth outperformance in Q1 and some easing in US exceptionalism.
**Fundamental Drivers: Central Banks at a Crossroads**
Both the Fed and the BoE are approaching critical junctures in their policy cycles, each facing unique domestic and external pressures.
*1. The Bank of England: Dovish Turn Weighs on Sterling*
The BoE has steadily transitioned to a more cautious, dovish policy stance following data that suggests UK inflation is cooling more than anticipated and the growth outlook remains subdued.
– The BoE kept its policy rate unchanged at recent meetings but signaled a readiness to ease in the coming months if inflation continues its downward path, with Governor Andrew Bailey emphasizing data dependency.
– Core UK inflation has declined toward the 2 percent target, and wage growth, though still robust, is moderating.
– Markets are currently pricing in at least two rate cuts by the BoE before year-end, with some analysts predicting the first move as soon as August.
This dovish re-pricing has limited sterling’s scope for appreciation, especially against majors like the US dollar.
*2. The Federal Reserve: Rate Cut Bets Support GBP/USD*
Meanwhile, the Federal Reserve, while more cautious about imminent rate cuts due to stickier-than-expected US inflation, is still widely expected to lower policy rates before the end of 2024.
– US CPI and PCE inflation data for the past quarter have come in higher than the Fed’s 2 percent target, forcing policymakers to delay cuts but not entirely rule them out.
– Strong US labor market data has also allowed the Fed to err on the side of policy patience.
– However, markets have recently priced in at least one 25 basis point cut by December, with some economists predicting two, should inflation resume its downward trend.
Speculation about Fed easing tends to weaken the US dollar, providing backing for GBP/USD even when UK data is less encouraging.
**Economic Outlook: Contrasts and Convergences**
A number of macroeconomic themes are intersecting to drive GBP/USD price action.
*1. UK Fundamentals: Fragile Recovery, Disinflation in Focus*
– The UK economy exited a brief, shallow recession in early 2024 with GDP posting meager growth.
– Business and
Read more on GBP/USD trading.