Forces shaping the GBP/USD currency pair

We often hear about technical analysis, patterns, supports, and resistances, but it’s nonetheless a good idea to sometimes look back at the fundamentals that determine the value of one currency compared to another.

What are the major macroeconomic events steering the evolution of GBP/USD?

• Monetary policy: The Bank of England (BoE) has gradually raised interest rates to combat persistent inflation, while the US Federal Reserve (Fed) has adopted a similar policy but with adjustments in response to fluctuating economic data. Interest rate decisions directly influence the value of the GBP to USD.
• UK economy: The UK economy has shown signs of resilience despite post-Brexit challenges and inflationary pressures. The labor market remains robust, but sectors such as property have shown signs of weakness. Economic growth and consumption levels are key indicators to watch.
• US economy: In the US, high but falling inflation, solid consumer spending, and tight monetary policy have supported the US dollar. Employment data and GDP growth have also impacted dollar strength.

Forecasts for the months ahead

• Monetary policy: The BoE could continue to adjust interest rates to keep inflation under control, especially if inflation does not fall as expected. Any indication of a loosening or tightening of monetary policy will directly impact on the GBP. For its part, the Fed could moderate its rate hike cycle if inflation shows signs of stabilizing, which could weaken the dollar against the pound.
• Geopolitical factors: Geopolitical tensions, in particular trade relations between the UK and the EU post-Brexit, as well as US policies towards China, could cause fluctuations. A stabilization of these relations could strengthen the GBP, while increased tensions could favor the USD as a safe haven.
• Economic performance: The relative economic performance of the two countries will be crucial. If the UK economy shows signs of sustained recovery and inflationary pressures ease, the GBP could strengthen. Conversely, if US economic data remains robust with inflation under control, the USD could maintain its strong position.
• Market sentiment: Overall investor sentiment also plays a crucial role. In times of uncertainty, the US dollar is often seen as a safe haven, which could keep pressure on the GBP. However, increased confidence in the global economic recovery could benefit the pound.

Short-term forecasts point to continued volatility, with trends heavily dependent on central bank decisions and the key economic indicators mentioned above.