USD/GBP Outlook: Slightly weaker, but likely to move sideways, as the rate is below its recent average and near recent lows.
Key drivers:
• Rate gap: The Federal Reserve is holding interest rates steady, contrasting with the Bank of England's anticipation of potential rate cuts as economic indicators suggest a slowdown.
• Risk/commodities: Recent geopolitical tensions, including U.S. tariff threats and military interventions, have contributed to fluctuations in the USD's value, impacting its demand relative to the pound.
• One macro factor: UK inflation is expected to decrease, possibly leading to the Bank of England lowering rates, which could create additional downward pressure on the pound.
Range: The USD/GBP is likely to hold within its recent 3-month range as underlying factors create mixed signals.
What could change it:
• Upside risk: A strong U.S. manufacturing report could boost confidence in the dollar and lead to a rate increase.
• Downside risk: A clearer signal from the Bank of England regarding future rate cuts could weaken the pound further against the dollar.
