Dollar vs. Pound short positions weaken, GBP is expected to test the 1.40 level

According to market analysts, despite the lack of key drivers in the UK economy, the upward momentum of the US dollar against the British pound has significantly weakened, and the pound still has the potential to test the 1.40 level. This assessment is based on the difficulty of the dollar’s rebound following the Federal Reserve decision, with market confidence in the dollar’s subsequent rally clearly diminished.

Weak Dollar Rebound, Fundamental Support Diminishes

After the Federal Reserve policy decision, the dollar experienced a rebound, but Convera strategist George Vesi pointed out that this rally lacks substantial underlying catalysts. The dollar’s intrinsic growth momentum has notably weakened, and the short-term rebound is unlikely to alter its long-term bearish trend. Traders generally believe that the dollar’s upward momentum has become exhausted, providing room for the pound to appreciate against the dollar.

Limited Pound Appreciation Potential, Multiple Risks Constrain

Although the US dollar against the pound faces upward pressure, the pound has shown clear weakness against other major G10 currencies. If the Bank of England’s subsequent rate cuts exceed market expectations, the pound against the euro could further decline, directly impacting the overall trend of the pound. Additionally, with the upcoming May local elections in the UK, concerns over fiscal policy are rising, which may add further pressure on the pound.

Multiple Factors at Play, Market Cautiously Watching

The direction of the dollar against the pound will depend on the relative changes in US economic fundamentals and UK policy expectations. While short-term momentum is insufficient to support a rise in the pound, the UK’s own policy uncertainties and fiscal pressures remain highly relevant. Investors should closely monitor central bank policy signals and fiscal data to determine the ultimate breakout direction of the dollar against the pound.