Original Article Credit: Justin McQueen, TradingNews.com
Source: https://www.tradingnews.com/news/gbp-usd-price-forecast-pound-holds-13450-fed-boe-split-keeps-bulls-aiming-137
GBP/USD Price Forecast: Pound Maintains Strength Near 1.3450 as Divergence Between the Fed and BoE Supports Bullish Sentiment
The British pound continues to exhibit resilience as it holds firm above the 1.3450 level against the US dollar. A major theme driving GBP/USD strength is the ongoing divergence in monetary policy outlooks between the Federal Reserve (Fed) and the Bank of England (BoE). While the Fed maintains a more cautious, patient approach toward tightening monetary policy, the BoE has adopted a more hawkish stance, signaling potential rate hikes sooner than previously anticipated. This contrast in central bank positions fuels bullish momentum in the GBP/USD pair, drawing increased attention from forex investors and traders in the current macroeconomic climate.
Overview of GBP/USD Market Sentiment
Global currency markets are currently navigating an environment shaped by shifting expectations surrounding interest rate hikes, inflation pressures, and economic recovery trajectories. The GBP/USD pair has emerged as one of the more closely watched major exchange rates due to several catalysts:
– Elevated UK inflation numbers and hawkish BoE rhetoric
– The Fed’s relatively dovish tone, especially on tapering and rate hike timelines
– Optimism regarding the UK’s economic rebound, particularly as COVID-19 restrictions taper off
– US dollar weakness, partially driven by declining US Treasury yields
With the BoE showing signs of tightening policy sooner than the Fed, forex markets have priced in optimistic expectations for GBP/USD upside moves. Last week’s developments provided further momentum for the pound, fueled by strong inflation prints out of the UK and supportive commentary from BoE officials.
BoE Takes a Hawkish Turn
The Bank of England surprised markets in recent policy commentary, dampening dovish assumptions previously dominating sterling outlooks. Highlighted developments include:
– UK inflation data printed stronger than anticipated, with CPI rising above 3%, exceeding the BoE’s 2% target
– Monetary Policy Committee (MPC) members began signaling growing concern over persistent inflation
– BoE Governor Andrew Bailey and Chief Economist Huw Pill noted that inflationary pressures may be more entrenched, hinting that monetary tightening might be necessary sooner
The market response was immediate, with money markets pricing in potential rate hikes as early as the first quarter of the following year. According to the latest OIS (Overnight Index Swaps) data:
– There is a near 70% implied probability for a 15-basis point hike by February
– Additional rate increases are expected by mid-year if inflationary conditions persist
These hawkish signals have provided sterling bulls ample incentive to target higher levels, particularly against a dollar that lacks equivalent policy urgency.
Federal Reserve Maintains a More Measured Outlook
In contrast, the Federal Reserve continues to emphasize patience in reducing monetary support:
– Chair Jerome Powell and other Fed officials have highlighted economic uncertainty and uneven labor market recovery
– Although tapering of asset purchases is set to commence soon, rate hikes are still perceived as a mid-to-late 2024 event
– Recent NFP (non-farm payrolls) reports showed moderate job gains, insufficient to spur aggressive Fed normalization
As a result, the US dollar has softened, particularly against currencies from economies where central banks are perceived as more proactive. For GBP/USD, this has opened the door for continued appreciation in the near term as long as the BoE maintains its hawkish stance.
Key Technical Levels to Watch: GBP/USD Outlook
On the technical front, the GBP/USD pair exhibits a bullish chart structure, reinforcing positive fundamentals. Major insights from a technical analysis perspective are:
Support Zones:
– The 1.3450 level acts as a significant short-term support zone, defining the base of the current bullish move
– Firm
Explore this further here: USD/JPY trading.