**Pound Sterling to Dollar Forecast: GBP Rises as BoE Holds Rates, U.S. Political Uncertainty Weighs on USD**
*Adapted and expanded from Currency News by Tim Clayton*
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### Overview
The Pound Sterling (GBP) has experienced notable gains against the US Dollar (USD) in the latest forex market sessions. This movement is largely attributed to the Bank of England’s (BoE) decision to keep interest rates steady, along with escalating uncertainty in US political circles, particularly concerns about the potential impact of a government shutdown. As the economic landscape shifts, currency traders and investors are closely examining the underlying factors influencing the GBP/USD exchange rate.
This article delves into the main drivers behind the recent market performance of GBP/USD, offering a forward-looking view on potential market scenarios. In addition, readers will gain insights into broader trends in UK and US monetary policy, recession risks, and the possible trajectory for the currency pair.
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### Bank of England Holds Rates Firm
One of the cornerstone developments in the recent GBP/USD performance is the decision by the Bank of England to maintain its base interest rate at its current level. The Monetary Policy Committee (MPC) voted strongly in favor of holding rates steady, a decision reflective of the current UK economic climate.
**Key takeaways from the BoE decision:**
– **Inflation Remains Volatile**: UK inflation, though still above target, has shown signs of slowing. The central bank recognizes core inflation pressures, especially in the service sector and wages, remain a concern.
– **No Immediate Rate Cuts**: Despite market speculation, BoE Governor Andrew Bailey and other MPC members have not signaled an imminent rate cut. The Committee reiterated its commitment to a “higher for longer” approach until inflation sustainably moves toward the 2% target.
– **Moderate Economic Output**: The Bank’s statement conceded that UK growth is expected to remain “subdued” throughout 2024, with some economic slack emerging in the labor market.
– **Market Reaction**: The Pound responded positively to the decision and the tone of its communications, as markets interpreted the BoE stance as relatively more hawkish than the US Federal Reserve’s current position.
The BoE’s focus on persistent inflation—especially wage growth—suggests a cautious approach. Investors interpreted this as an indication that UK rates could stay elevated longer than previously assumed, offering support to the Pound.
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### US Dollar Weighed Down by Political Uncertainty
On the other side of the equation, the US Dollar has come under pressure from a different set of factors, dominated by US domestic political risk and uncertainty about monetary policy.
**What’s weighing on the USD:**
– **Potential Government Shutdown**: In early November, investors became increasingly concerned about warnings of a US government shutdown. Such an event could weigh on economic confidence, disrupt federal services, and potentially dent GDP growth.
– **Fiscal Policy Gridlock**: Ongoing disagreements in Congress over spending bills continue, leaving markets wary of a protracted political standoff.
– **FOMC Policy Shift**: The Federal Open Market Committee (FOMC) maintained its interest rates at its most recent meeting and signalled that tightening cycles are likely on pause. This subtle shift in tone has softened USD demand among global investors.
– **Slowing Economic Data**: Recent US economic releases, including weaker-than-expected job growth and moderating inflation, have contributed to doubts about the sustainability of US outperformance.
Combined, these factors have contributed to a risk-off appetite in global markets, with the Dollar slipping as investors adjust their portfolios in search of relative stability.
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### GBP/USD Market Performance
The GBP/USD exchange rate has responded dynamically to these developments, with the Pound gaining ground against the Dollar.
– **Recent Trading Range**: The currency pair moved firmly above the key 1.23 support level and has tested resistance levels near 1.24 in spot trading sessions.
– **Vol
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