The narrowing divergence in economic growth, government stability, and the difference in the pace of monetary expansion by the Fed and the Bank of England have allowed the GBPUSD pair to soar above 1.3. Will it manage to gain a foothold there? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Highlights and key points
- Economists do not believe that the Labour Party will boost GDP.
- The divergence in US and UK economic growth is narrowing.
- The Fed and the BoE are likely to cut rates in September.
- The GBPUSD pair may rise to 1.313 and 1.323.
Weekly fundamental forecast for pound sterling
The UK’s accelerating economic growth, the most stable government in at least five years, and the Bank of England’s sluggishness in cutting rates contrast with the slump in US GDP growth, the growing risks of Donald Trump’s return to the White House, and expectations of three acts of monetary expansion by the Fed in 2024. Against this backdrop, the GBPUSD pair has surged above 1.3 for the first time in a year, with the pound becoming a top performer among the most liquid currencies on Forex.
Even though the now-ruling Labour Party promised to make the UK the best G7 economy, Bloomberg experts doubt they will succeed. They modestly raised GDP growth forecasts by 0.1pp in 2024 and 2025. Gross domestic product is expected to expand by 0.8% this year and 1.3% next year.
UK GDP growth forecast
Source: Bloomberg.
The estimates are comparable to the IMF assessment, which expects the UK economy to expand by 0.7% in 2024 and 1.5% in 2025. The financial agency believes the US GDP will grow by 2.6% and 1.9% in 2024 and 2025, respectively. Reducing divergence is a strong argument favoring medium- and long-term GBPUSD purchases against the backdrop of an economy ready to post higher-than-expected figures. It grew fastest among G7 countries in the first quarter, accelerating to 0.4% in May.
If the estimates are underestimated, GBPUSD quotes may rise. This is all the more so as the latest data on inflation and the labor market in the UK dropped the chances of the Bank of England’s monetary expansion in August to 30% from 50%. Services inflation remained at 5.7%, although the BoE forecast that it should have fallen to 5.1% in June.
UK inflation rate change
Source: Financial Times.
Coupled with a reluctant labor market cooling, this factor closes the door to a repo rate cut at the next Bank of England meeting. Markets expect to see monetary policy easing only in September, after which a pause will likely follow. Against the backdrop of the Fed’s projected three acts of monetary expansion, in September, November, and December, this may reinforce the GBPUSD pair’s uptrend.
However, there is always a game changer. Fiscal stimulus from Donald Trump will fuel inflation and boost US GDP, while protectionist policies will slow economic growth overseas. The US exceptionalism will return to the Forex market, making the greenback the king of Forex again.
Weekly trading plan for GBPUSD
However, the GBPUSD will likely continue to rally until that happens. The pair has easily hit its targets, so they should be adjusted. The next targets are 1.313 and 1.323. One can buy the pound on pullbacks at 1.295 and 1.289 or if the pair returns above 1.302.
Price chart of GBPUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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