The Pound Sterling (GBP) staged an impressive recovery against the US Dollar (USD), as GBP/USD clinched fresh monthly highs above the 1.3250 psychological level.
Pound Sterling capitalized on the UK Budget relief
Amidst increased odds of interest rate cuts by the Bank of England (BoE), GBP/USD found its feet, thanks to the UK Autumn Budget and growing expectations surrounding a US Federal Reserve (Fed) December rate reduction.
The CME Group’s FedWatch Tool showed an 85% chance of the Fed lowering rates next month against a 40% probability seen a week ago. Dovish commentary from Fed officials and mixed US data ramped up odds for such a move by the central bank.
New York Fed President John Williams said on November 21 that “US interest rates could fall without putting the Fed’s inflation goal at risk, while helping guard against a slide in the job market,” per Reuters.
Earlier in the week, Fed Governor Christopher Waller also favored a rate cut before the end of the year and expressed concerns about a “still fragile” labor market.
San Francisco Fed President Mary Daly also noted that “the Fed shouldn’t hold off on cutting rates now out of fear it may need to reverse course later.”
Later in the week, the Pound Sterling recovery gained traction due to the UK Budget announcement, which eased pressures surrounding fiscal concerns and bolstered GBP/USD.
Citing analysts, Reuters reported, “fears about slow growth, weak productivity and sticky inflation are not reflective of an attractive investment backdrop.”
Chancellor of the Exchequer Rachel Reeves’ budget was well received by markets despite the Office for Budget Responsibility (OBR) downward revision of the economic growth for 2025.
However, the pair’s upswing remained restricted because of the details of the Budget, entailing back-loaded tax measures.
Week ahead: US data to dominate
The week kicks off with the US ISM Manufacturing PMI on Monday.
Next of note for markets remains the monthly ADP Employment Change report on Wednesday, followed by the US ISM Services PMI release.
On Thursday, the weekly Unemployment Claims will be reported ahead of the release of the Fed’s preferred inflation measure, the Personal Consumption Expenditures Price Index, on Friday.
Besides the economic data, speeches from BoE policymakers and updates on the US-Ukraine discussions on the potential peace deal will also be closely followed.
GBP/USD Technical Analysis
The 20-day Simple Moving Average (SMA) has started to turn higher but remains below the 50- and 100-day SMAs. The 50- and 100-day SMAs extend their decline, while the 200-day SMA rises; price stays below the 50-, 100- and 200-day SMAs but above the 20-day. The Relative Strength Index (14) prints at 53 (neutral), signaling modest momentum recovery. Measured from the 1.3675 high to the 1.3011 low, the 38.2% retracement at 1.3264 acts as near-term resistance, with the 50% at 1.3343 above.
Bias remains uneven, with improving short-term momentum yet persistent overhead hurdles. The 20-day SMA currently stands at 1.3142 and offers nearby support, while the 200-day SMA at 1.3313 acts as dynamic resistance; the 50- and 100-day SMAs continue to slope lower. RSI holding above 50 would increase the odds of an upside extension, while a pullback would expose the 20-day SMA as the first line of defense.
(The technical analysis of this story was written with the help of an AI tool)
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.
