- GBP/USD recovers to near 1.2690 in Wednesday’s early European session.
- The negative view of the pair prevails below the 100-day EMA with a bearish RSI indicator.
- The potential support level is located at 1.2600; the first resistance level is seen at 1.2750.
The GBP/USD pair trades in positive territory for the second consecutive day around 1.2690 during the early European session on Wednesday. However, the potential upside for GBP/USD seems limited as the expectation of less aggressive interest rate cut by the US Federal Reserve (Fed) and the concerns about US President-elect Donald Trump's tariffs policies could provide some support to the Greenback. Investors await Federal Reserve Chair Jerome Powell's speech for cues about the interest rate outlook.
The bearish outlook of GBP/USD remains in play as the major pair holds below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Furthermore, the 14-day Relative Strength Index (RSI) remains capped below the midline around 45.35, suggesting that the further downside cannot be ruled out.
The 1.2600 psychological level acts as an initial support level for the major pair. Further south, the next downside target to watch is 1.2467, the lower limit of the Bollinger Band. A breach of this level could push prices lower toward 1.2331, the low of April 23.
In the bullish case, the first resistance level is seen at 1.2750, the high of November 29. Sustained bullish momentum could see a rally to 1.2875, the 100-day EMA. The additional upside filter emerges at 1.2920, the upper boundary of the Bollinger Band.
GBP/USD daily chart
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, also known as ‘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.
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