**GBP/USD Price Forecast: Pound Bulls Test 1.35 as Fed Easing Bets Meet BoE Expectations**
*By Richard Snow (original author), adapted and expanded for educational purposes*
The GBP/USD currency pair has recently caught the market’s attention, rallying towards the 1.35 mark as investors digest the dual forces of potential Federal Reserve policy easing and a stable outlook for the Bank of England (BoE). This article will analyze the driving factors behind the current GBP/USD trend, key economic data to watch, and what traders can expect in the near term.
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## Fed Easing Bets Fuel Dollar Weakness
Recent economic data from the United States has painted a complicated picture for the Federal Reserve. While inflation remains above the Fed’s two percent target, recent labor market softness and slower consumer spending have reignited speculation that the central bank could cut interest rates at some point in 2024.
Key points surrounding the Fed’s policy outlook include:
– **Mixed U.S. Data**: Jobless claims rose unexpectedly, while June’s manufacturing PMI data showed contraction. GDP growth, although stable, missed some forecasts.
– **Inflation Moderation**: Key measures, such as Core PCE inflation, have eased, providing ammunition for policy doves.
– **Market Expectations**: Fed Fund Futures now show a significant probability of one or even two cuts before the end of 2024.
– **Fed Communication**: While Federal Reserve Chair Jerome Powell continues to indicate data dependence, recent speeches from other board members have sparked market volatility as traders search for a consensus.
The net effect is a weaker US dollar, with the Dollar Index (DXY) pulling back from recent highs. As USD softens, GBP/USD has capitalized, with the currency pair breaking technical resistance levels and eyeing higher ground.
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## Bank of England Holds the Line
Unlike the Fed, the Bank of England has sent clear signals of its intent to maintain policy stability in the near term. Headline inflation in the UK has started to recede, but services inflation remains sticky, and wage pressure persists due to a tight labor market.
Summary of BoE’s current stance:
– **Cautious Optimism**: Policymakers recognize that headline inflation is moving in the right direction, but they are in no rush to cut rates, favoring a “wait and see” approach.
– **Political Stability**: The UK’s recent parliamentary elections concluded with a clear outcome, reducing immediate political uncertainty.
– **Robust Labor Market**: Unemployment, although up marginally, remains historically low, and wage growth is still outpacing inflation.
– **Governor Bailey’s Comments**: Andrew Bailey recently highlighted that while there has been progress against inflation, further confirmation is needed before adjusting rates.
This divergence in central bank outlooks has reinforced sterling’s relative strength against the dollar. With UK rates set to stay higher for longer, investors are drawn to GBP-denominated assets.
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## Key Technical Levels and Chart Analysis
GBP/USD has staged an impressive rally since late spring, recovering from prior support near 1.23 and pushing higher as risk sentiment has improved and dollar sentiment has soured.
– **Key Resistance at 1.35**: For several months, the 1.35 handle has acted as a significant psychological and technical barrier. Bulls have pressed this level, but so far a breakout has proven elusive.
– **Support Zones**: Near-term support exists at 1.3400 and at previous swing lows around 1.3250.
– **Indicators**: The daily Relative Strength Index (RSI) approaches overbought territory, suggesting that momentum is strong but caution is warranted.
– **Moving Averages**: GBP/USD trades well above its 50-day and 200-day moving averages, reinforcing the uptrend. Momentum indicators remain positive.
Traders should watch for a confirmed daily close above 1.35 to signal a breakout, which could open
Read more on GBP/USD trading.