GBP/USD Price Analysis: Slips toward 1.2800 and consolidates ahead BoE’s decision

GBP/USD retreats 1.70% from YTD high of 1.3043, trading at 1.2826.
Technical outlook shows bearish momentum, with key support at 1.2800 and potential further losses to 1.2612-1.2622 area.
Buyers need to push past 1.2893 to challenge 1.2900 and higher resistance levels.

The GBP/USD begins the week on the back foot ahead of the Bank of England’s monetary policy decision on August 1. Market participants seem convinced that the BoE would cut interest rates, yet the odds are around 59%. The pair trades at 1.2826, down 0.28%

GBP/USD Price Analysis: Technical outlook

The GBP/USD extended its losses after hitting a year-to-date (YTD) high of 1.3043, retreating some 1.70%, clearing some support levels. However, further losses beneath 1.2800 could drive the price toward the confluence of the June 27 cycle low and the 200-day moving average (DMA) at around the 1.2612-1.2622 area.

Momentum shows sellers are in charge, as depicted in the Relative Strength Index (RSI), turning bearish, with a downward slope and under the 50-neutral line.

Therefore, the first support for GBP/USD would be the 1.2800 mark, followed by the 50-DMA at 1.2778. Once cleared, the next stop would be the 100-DMA at 1.2681, followed by the aforementioned area.

Conversely, if buyers moved in and pushed the exchange rate past the March 8 peak at 1.2893, that could pave the way to challenge 1.2900 and higher prices.

GBP/USD Price Action – Daily Chart

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.

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