GBP/USD Price Forecast: Remains capped below the 100-period EMA, UK Autumn Budget in focus

GBP/USD weakens to near 1.3005 in Wednesday’s early European session.
The bearish outlook of the pair remains intact below the 100-period EMA.
The first downside target to watch is 1.2943; the immediate resistance level emerges at 1.3016.

The GBP/USD pair trades in negative territory around 1.3005 on Wednesday during the early European trading hours. Investors will closely monitor the UK Autumn Budget 2024. The UK government is set to deliver Labour’s first budget in almost 15 years on Wednesday. Commerzbank analysts said that if the budget combines austerity with the hope of tackling long-term investment, “this should be positive for the pound as it would strengthen the U.K.’s long-term growth potential.”

GBP/USD keeps the bearish vibe on the 4-hour chart as the major pair is below the key 100-period Exponential Moving Average (EMA). Nonetheless, the Relative Strength Index (RSI) stands above the 50-midline near 57.60, indicating that further upside cannot be ruled out in the near term.

The lower limit of the Bollinger Band at 1.2943 acts as an initial support level for GBP/USD. A breach of this level could expose the 1.2910-1.2900 region, portraying the low of October 24 and the psychological figure. The next contention level to watch is 1.2813, the low of August 14.

On the bright side, the upper boundary of the Bollinger Band at 1.3016 acts as the first upside barrier for the major pair. Extended gains could pave the way to the 100-period EMA at 1.3032. The next hurdle is located at 1.3071, the high of October 18.

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, 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.

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