- GBP/USD touched its highest level in a month above 1.2970 on Monday.
- The near-term technical outlook points to overbought conditions for the pair.
- The economic calendar will not offer any high-impact data releases.
The persistent selling pressure surrounding the US Dollar (USD) on Friday allowed GBP/USD to extend its weekly rally. After gaining nearly 1.5% in the previous week, the pair continued to stretch higher and reached its strongest level in a month above 1.2970.
Although last week's upbeat data releases from the US caused markets to refrain from pricing in a 50 basis points (bps) rate cut in September, the USD struggled to outperform its rivals as risk flows dominated the action in financial markets.
Early Monday, US stock index futures trade little changed on the day, while the 10-year US Treasury bond yield stays in negative territory below 3.9%, making it difficult for the USD to stay resilient against its rivals.
The economic calendar will not feature any data releases that could impact the USD's valuation in the second half of the day. In case markets adopt a cautious stance in the American session, GBP/USD could start correcting lower.
In the meantime, market participants will pay close attention to comments from Federal Reserve (Fed) Governor Christopher Waller later in the day. Over the weekend, San Francisco Fed President Mary Daly told the Financial Times that it is time to consider adjusting borrowing costs. Additionally, Chicago Fed President Austan Goolsbee argued that not lowering the policy rate in September could damage the labour market.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart climbed above 80 on Monday, reflecting technically overbought conditions for GBP/USD. In case the pair stages a technical correction, immediate support is located at 1.2950 (Fibonacci 78.6% retracement of the latest downtrend) before 1.2900 (Fibonacci 61.8% retracement, psychological level) and 1.2850 (Fibonacci 50% retracement level).
On the upside, 1.3000 (psychological level, static level) could be seen as next resistance before 1.3045 (beginning point of the downtrend, July 17 high).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD trades at yearly lows below 1.0500 ahead of PMI data
EUR/USD stays on the back foot and trades at its lowest level since October 2023 below 1.0500 early Friday, pressured by persistent USD strength. Investors await Manufacturing and Services PMI surveys from the Eurozone, Germany and the US.
GBP/USD falls to six-month lows below 1.2600, eyes on key data releases
GBP/USD extends its losses for the third successive session and trades at a fresh fix-month low below 1.2600. This downside is attributed to the stronger US Dollar (USD) as traders continue to evaluate the Fed's policy outlook following latest data releases and Fedspeak.
Gold rises toward $2,700, hits two-week top
Gold continues to attract haven flows for the fifth consecutive day and rises toward $2,700. XAU/USD continues to benefit from risk-aversion amid intensifying Russia-Ukraine conflict. Investors keep a close eye on geopolitics while waiting for PMI data releases.
Ethereum Price Forecast: ETH open interest surge to all-time high after recent price rally
Ethereum (ETH) is trading near $3,350, experiencing an 10% increase on Thursday. This price surge is attributed to strong bullish sentiment among derivatives traders, driving its open interest above $20 billion for the first time.
A new horizon: The economic outlook in a new leadership and policy era
The economic aftershocks of the COVID pandemic, which have dominated the economic landscape over the past few years, are steadily dissipating. These pandemic-induced economic effects are set to be largely supplanted by economic policy changes that are on the horizon in the United States.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.