GBP/USD Stabilizes at 1.3350 as Fed Hold, UK Inflation Influence Sentiment
GBP/USD remains stable at 1.3350 as the US Dollar weakens in anticipation of the Federal Reserve’s interest rate decision as markets already largely expect a halt to rate hikes. The currency pair continues its gradual bounce back after recovering from a two-month low on the back of a muted USD and risk-averse investor sentiment. While the Fed is likely to leave rates unchanged, all eyes are on the FOMC press conference for hints at potential rate cuts in the second half of the year. On the UK front, the Pound continues to come under pressure as it struggles with soft labor market data and high inflation, making the Bank of England’s policy outlook tricky before its next meeting. KEY LOOKOUTS • Investors will keenly watch any indications of prospective rate cuts, particularly the possibility of easing from September. • The next Q2 PCE inflation report and July Nonfarm Payrolls will be important to the Fed’s next step. • There is a growing chance of a 25 bps rate cut in August as UK inflation remains elevated and economic growth slows. • Soft PMI prints and moderating labor market conditions may continue to burden the Pound Sterling in the immediate future. GBP/USD trades with a modestly upbeat bias at 1.3350 as the US Dollar loses strength in anticipation of the Federal Reserve policy release. Even though the Fed is universally anticipated to keep rates unchanged, market players will carefully scrutinize Chair Powell’s statements for any rate-cut guidance, maybe starting as early as September. On the British side, the Pound Sterling continues to be weighed down by soft labor market reports and persistent inflation concerns, making it difficult for the Bank of England to chart policy.”. In spite of a boost in food sales, soft PMI readings have raised hopes of a 25 bps rate cut by the BoE in August, contributing to the risk-averse sentiment around GBP. GBP/USD is trading around 1.3350 as the US Dollar weakens in anticipation of the Fed rate decision. Even as the Fed is likely to maintain rates, the market is looking for cues on when it will cut further. In the meantime, UK economic woes and BoE policy doubts cap Pound appreciation. • GBP/USD trades around 1.3350, bouncing back slightly from a two-month low of 1.3307. • The US Dollar continues to stay subdued in anticipation of the Federal Reserve interest rate decision. • The Fed will likely keep rates unchanged at 4.25%–4.50%, with a 97% probability already priced in. • The FOMC press conference is being waited upon for cues on potential rate cuts from September onwards. • UK labor market conditions are easing, damping the Pound’s resilience. • Inflation pressures in the UK are ongoing, making the Bank of England’s policy trajectory more challenging. • Deteriorating UK PMI numbers and weakening economic momentum increase the prospects of an August BoE rate cut. GBP/USD is exhibiting stability around the 1.3350 mark as market sentiment shifts towards the imminent Federal Reserve interest rate determination. The central bank is expected to leave the current rate band of 4.25% to 4.50% intact, with an almost-unanimous market expectation of no action. But true attention is on the post-meeting discussion, where hints are being sought on when rate cuts may be implemented, perhaps from September. At a time when U.S. inflation is easing and growth worries are slowly emerging, this policy shift has raised hopes tentatively. GBP/USD DAILY PRICE CHART SOURCE: TradingView The economic sentiment in the UK is still unclear. Even though retail food sales experienced a modest boost, wider economic indicators like PMI reading still indicate weakness in momentum. The labor market is also cooling off, while inflation pressures linger. This combination puts the Bank of England in a precarious position before its next policy meeting. Markets are increasingly factoring in the chance of a rate cut in August, with a second one perhaps by the end of the year, as the central bank attempts to walk the tightrope between inflation control and the need to prop up slowing growth. TECHNICAL ANALYSIS GBP/USD is consolidating at the 1.3350 level, which is now a major support area after recent recovery from a two-month low at 1.3307. Short-term moving averages are starting to converge, which suggests that momentum could be turning towards a steadier uptrend, and the Relative Strength Index (RSI) has eased back from oversold levels. Traders are looking for any break above this level as confirmation of further bullish action, with volume trends supporting the likelihood of more gains if buying pressure continues to be sustained. FORECAST If the Federal Reserve sends a dovish message in its press conference—suggesting that it will reduce rates in the second half of this year—GBP/USD may experience fresh bullish moves. A move over the 1.3360–1.3380 resistance level may set the course toward the 1.3420 and 1.3500 levels. Any evidence of strength in the UK economy or a less hawkish tone from the Bank of England towards impending rate reductions can also provide additional support to the Pound. To the downside, if the Fed sees no reason to ease further or if future US economic statistics surprise to the upside, the US Dollar could strengthen, sending GBP/USD back to key support at 1.3300. A break below this level that holds could unleash further losses on the pair with potential targets at 1.3250 and 1.3200. Further poor UK data or high hopes of BoE rate reductions would tend to add bearish pressure.