**Pound to Dollar Forecast: Can GBP/USD Break 1.35? FTSE Hits Record Highs**
*Adapted from an article originally published by Currency News UK.*
## Market Overview
The relationship between the British pound (GBP) and the US dollar (USD) remains one of the most closely watched currency pairs in the forex market. The GBP/USD pair, often referred to as “Cable,” has displayed notable volatility in recent months, drawing the attention of investors, traders, and analysts worldwide. Recent economic trends, central bank policy expectations, and geopolitical developments have put additional pressure on the exchange rate as market participants weigh the prospect of the pair breaking the significant 1.35 milestone.
Simultaneously, the FTSE 100 index, a benchmark for large-cap companies listed on London’s stock exchange, recently achieved record highs. This accomplishment reflects changing sentiment in UK equity markets and adds another layer of complexity to analyzing the future dynamics of the pound and its relationship with major global currencies, particularly the US dollar.
## GBP/USD Recent Performance and Key Trends
Over the past year, the GBP/USD pair has faced a series of headwinds and tailwinds, driven by a combination of domestic economic data, policy announcements from the Bank of England and the US Federal Reserve, and the broader risk sentiment in global financial markets. The pair has encountered periods of both appreciation and depreciation, underscoring the importance of several key factors:
– **Inflation Data**: Persistent inflationary pressures in the US and the UK have created uncertainty around central bank policy actions.
– **Interest Rate Decisions**: Diverging monetary policy paths between the Bank of England and the US Federal Reserve are a major source of volatility.
– **Economic Growth Prospects**: GDP readings and business surveys (PMIs) continue to shape market perceptions regarding the relative health of the UK and US economies.
– **Political Developments**: Brexit legacy issues, UK fiscal policy, and US government spending measures have occasionally injected fresh volatility into the market.
During the final quarter of 2023 and the beginning of 2024, the GB/USD rate has tested key support and resistance levels, sparking speculation as to whether the pair can decisively push beyond the psychologically significant 1.35 level.
## Drivers Behind the Recent FTSE 100 Rally
The robust performance of the FTSE 100, reaching record highs, has further complicated the outlook for GBP/USD. Historically, moves in the FTSE 100 and the GBP/USD pair can sometimes show an inverse correlation, as a stronger FTSE has often coincided with a weaker pound due to the heavy foreign earnings exposure of many FTSE constituents.
### Key Factors Powering the FTSE Rally
– **Positive Investor Sentiment**: Easing concerns over a hard landing in the UK economy and resilience among listed multinationals have attracted renewed investor interest.
– **Commodity Prices**: Rising commodity prices have supported the index, which has a heavy weighting towards oil, mining, and resource-oriented companies.
– **Global Economic Stabilization**: Signs of stabilization in global growth and risk appetite have benefited UK blue-chip companies, particularly those with significant overseas operations.
– **Banking Sector Strength**: Improved outlook in the banking and financial services sector has provided further momentum.
## Economic and Policy Analysis
### Bank of England Policy Path
The Bank of England (BoE) has faced a complicated task in navigating a challenging inflationary environment while also steering the economy away from the risk of a sharp slowdown. In recent policy meetings, the BoE has signaled a cautious approach, keeping rates on hold while noting that inflation remains above target but appears to be easing.
Key considerations for the BoE include:
– The trajectory of headline and core inflation readings
– Developments in wage growth and broader labor market conditions
– Fiscal policy, including moves on taxation and public spending wielded by the UK government
– Geopolitical risks impacting energy prices and the external trade balance
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