GBP/USD Price Analysis: The first upside target to watch is above 1.2800

GBP/USD trades firmer near 1.2875 in Monday’s early European session.
The negative outlook for the pair remains in play, with bearish RSI indicator on 4-hour chart.
The first upside barrier is seen at 1.2919; initial support level is located at 1.2843.

Lallalit Srijandorn FXStreet

The GBP/USD pair trades on a stronger note around 1.2875 during the early European trading hours on Monday. The softer Greenback amid the hope of an interest rate cut by the US Federal Reserve (Fed) in September provides some support to the major pair. The US Federal Reserve (Fed) Interest Rate Decision will be to highlight on Wednesday, with no change in rate expected.

GBP/USD maintains a bearish outlook on the 4-hour chart. Meanwhile, the Relative Strength Index (RSI) holds below the 50-midline, indicating that further downside looks favorable. However, the uptrend would resume once the major pair decisive crosses above the key 100-period Exponential Moving Average (EMA).

The upper boundary of the Bollinger Band at 1.2919 acts as an immediate resistance level for GBP/USD. A break above this level could pave the way to 1.2938, a high of July 24. Further north, the crucial hurdle will emerge at the 1.2990-1.3000 region, representing a high of July 12 and psychological mark.

On the flip side, the first downside target for the pair is seen at 1.2843, the lower limit of the Bollinger Band. A breach of this level will see a drop to 1.2777, a low of July 9. The additional downside filter to watch is 1.2739, a low of July 4.

GBP/USD 4-hour 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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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