GBP/USD Outlook:
GBP/USD is likely to move sideways as it is currently near its 3-month average, amid mixed signals from domestic and foreign factors. Political uncertainty in the UK may weigh on the pound, while the US dollar benefits from strong economic data.
Key drivers:
- Rate gap: The difference in interest rates between the Bank of England and the Federal Reserve is narrowing as the BoE adopts a more dovish stance, suggesting potential interest rate cuts.
- Risk/commodities: Ongoing geopolitical tensions keep demand for the safe-haven US dollar high, which supports its value against currencies like the GBP.
- Political uncertainty: Recent political events in the UK have created volatility, particularly around the results of by-elections that test the leadership of Keir Starmer.
Range:
GBP/USD is expected to drift within the recent trading range, influenced by the political situation in the UK and economic indicators from the US.
What could change it:
- Upside risk: A surprising win for Labour in upcoming by-elections could support the sterling.
- Downside risk: A strong US producer price index could strengthen the USD further, exerting downward pressure on GBP/USD.
