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GBP/USD Price Forecast: Hovers around 1.2400; seems vulnerable while below 50-day SMA

GBP/USD struggles to capitalize on intraday uptick amid a modest USD strength.
The divergent Fed-BoE outlook further contributes to capping the currency pair.
The setup seems tilted in favor of bears and supports prospects for deeper losses.

Haresh Menghani FXStreet

The GBP/USD pair rebounds a few pips from the Asian session low and currently trades around the 1.2400 round-figure mark, nearly unchanged for the day. The upside, however, remains capped in the wake of a modest US Dollar (USD) strength, which, in turn, warrants some caution for bullish traders.

US President Donald Trump's fresh tariff threats boost demand for the traditional safe-haven Greenback. Meanwhile, the upbeat US employment details released on Friday, along with expectations that Trump's protectionist policies would reignite inflation, should allow the Federal Reserve (Fed) to hold rates steady and lend additional support to the USD. Apart from this, the Bank of England's (BoE) gloomy outlook should contribute to capping the GBP/USD pair.

Even from a technical perspective, the recent repeated failures near the 50-day Simple Moving Average (SMA) suggest that the path of least resistance for the GBP/USD pair is to the downside. Hence, any subsequent move up could be seen as a selling opportunity and remain capped near the 1.2500 psychological mark. The latter should act as a key pivotal point for short-term traders, which if cleared decisively should pave the way for additional near-term gains.

The GBP/USD pair might then accelerate the positive move towards the 1.2575-1.2580 region en route to the 1.2600 round figure. The momentum could extend further towards the 1.2645-1.2650 intermediate hurdle, above which spot prices could aim to challenge the 100-day SMA, currently pegged near the 1.2715-1.2720 region.

On the flip side, weakness below the 1.2375-1.2370 immediate support could make the GBP/USD pair vulnerable to weaken further below the 1.2300 round figure, towards testing last week's swing low, around mid-1.2200s. Some follow-through selling should pave the way for a fall toward the next relevant support near the 1.2175 region.

GBP/USD 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, 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).

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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