- GBP/USD drops below the 20-DMA, with sellers gaining near-term control as RSI nears a break below 50.
- Key support lies at 1.3044 (July 17 peak), with further downside risks toward 1.2995 (50-DMA) and 1.2894 (March 8 high).
- Buyers need to hold above 1.3150 for a recovery, targeting resistance at 1.3111 and the psychological level of 1.3200.
The Pound Sterling dropped during the North American session, down 0.30% after UK data showed the economy is slowing down. This and a pick-up in US inflation weighed on the GBP/USD, which trades at 1.3035 after reaching a daily high of 1.3111.
GBP/USD Price Forecast: Technical outlook
The uptrend remains intact, but the GBP/USD drop below the 20-day moving average (DMA) gives sellers an edge in the near term.
The Relative Strength Index (RSI) clings to the bullish side, but a break below the 50-neutral line looms, which could accelerate the downfall and threaten to clear key support levels.
If GBP/USD clears 1.3050, the first support would be the July 17 peak at 1.3044. On further weakness, the pair might drop to the 50-DMA at 1.2995. A breach of the latter will expose the March 8 daily high at 1.2894.
Conversely, if buyers hold the spot price above 1.3150, that could pave the way for a recovery. The first resistance would be 1.3111, followed by the 1.3150 psychological level, ahead of cracking the 1.3200 figure.
GBP/USD Price Action – 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, 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).
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.
