GBP/USD Price Forecast: The bearish outlook remains in place below 1.2550

GBP/USD trades with mild gains around 1.2520 in Friday’s early European session.
The negative outlook of the pair remains intact below the 100-day EMA with the bearish RSI indicator.
The initial support level emerges at 1.2460; the first upside barrier is seen at 1.2614.

The GBP/USD pair posts modest gains to near 1.2520 during the early European session on Friday. Nonetheless, the upside of the major pair seems limited amid thin trading activity and the rising expectation that the US Federal Reserve (Fed) will deliver fewer rate cuts next year.

According to the daily chart, the bearish outlook of GBP/USD remains in play with the price holding the key 100-day Exponential Moving Average (EMA). The downward momentum is reinforced by the 14-day Relative Strength Index (RSI), which is located below the midline around 38.35, indicating that further downside looks favorable.

The first downside target to watch is 1.2460, the lower limit of the Bollinger Band. A breach of this level could see a drop to 1.2331, the low of April 23. The next contention level is seen at 1.2187, the low of November 10.

On the bright side, the immediate resistance level emerges at 1.2614, the high of December 20. Further north, the next hurdle is located at 1.2728, the high of December 17. The crucial upside barrier to watch is the 1.2810-1.2820 zone, representing the 100-day EMA and the upper boundary of the Bollinger Band.

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.

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