USD/GBP Outlook:
The USD/GBP exchange rate is likely to move sideways as it is near its recent average. Recent developments in both the US and UK economies suggest mixed signals that may keep the rate stable.
Key drivers:
• Rate gap: The Federal Reserve's potential for higher interest rates contrasts with expectations for a rate cut from the Bank of England, creating pressure on the GBP.
• Risk/commodities: Increased demand for safe-haven assets due to geopolitical tensions, particularly regarding US military actions in the Middle East, supports the US dollar.
• One macro factor: UK political uncertainties are adding to the negative outlook for the GBP, especially with potential shifts in leadership impacting confidence in the economy.
Range:
Expect USD/GBP to hold within its recent 3-month range, reflecting the lack of strong directional pressure.
What could change it:
• Upside risk: A strong US GDP report could bolster the dollar, driving the rate higher.
• Downside risk: If UK retail sales show better-than-expected performance, this may reduce pressure on the GBP, leading to a potential decline in the USD/GBP rate.
