GBP/USD Price Analysis: Surges above 1.3000 post UK inflation data

GBP/USD breaches 1.3000 for the first time since July 2023.
RSI indicates strong bullish momentum, with potential targets at 1.3050 and 1.3100.
Key supports at 1.2894 and 1.2860 if a pullback occurs below the psychological 1.3000 level.

The Pound Sterling has climbed sharply, breached the 1.3000 figure for the first time since July 19, 2023, and exchanged hands at 1.3020 above its opening price by 0.36%, following a mixed inflation report in the UK.

GBP/USD Price Analysis: Technical outlook

The GBP/USD uptrend is set to continue if Federal Reserve officials' rhetoric turns more dovish as policymakers eye the first rate cut. Bullish momentum accelerated, as depicted by the Relative Strength Index (RSI), which, despite being overbought above 70, due to the trend's strength, most traders see the 80 level as the most extreme condition.

If GBP/USD clears the psychological figure of 1.3050, buyers could target the 1.3100 mark. They can further challenge key supply zones overhead, with the July 18, 2023, peak at 1.3125, ahead of last year’s high at 1.3142.

On the other hand, a pullback below 1.3000 can exacerbate a deeper correction, with traders eyeing the latest cycle high, which turned support at 1.2894, the March 8 daily high. The further downside lies underneath, with the following demand zone at 1.2860 before diving to March’s 21 high, at 1.2803.

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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