The GBP/USD pair gains follow-through positive traction for the second straight day and sticks to modest intraday gains through the first half of the European session on Wednesday. Spot prices, however, lack bullish conviction and currently trade just above mid-1.3400s, up less than 0.10% for the day.
The latest optimism over a diplomatic resolution to end the five-month-old war in the Middle East and the reopening of the Strait of Hormuz dragged crude oil prices to a four-week low, easing inflation fears. Traders were quick to react and trimmed their bets for an imminent Fed rate hike. This, in turn, undermines the safe-haven US Dollar (USD), which is seen acting as a tailwind for the GBP/USD pair.
Investors, however, seem hesitant to place aggressive directional bets and opt to wait for further developments surrounding the US-Iran conflict. Furthermore, the closely watched US Nonfarm Payrolls (NFP) report on Friday would be looked for more cues about the Fed’s policy path. The outlook, in turn, will play a key role in influencing the near-term USD price dynamics and providing fresh impetus to the GBP/USD pair.
From a technical perspective, spot prices keep the near-term tone constructive while above the 200-hour Simple Moving Average (SMA). Moreover, momentum indicators are mildly supportive, with the Relative Strength Index (RSI) near 55 and the Moving Average Convergence Divergence (MACD) marginally positive near the zero line. This suggests steady bullish pressure as long as the GBP/USD pair remains above the underlying average.
Hence, any corrective pullback is more likely to attract fresh buyers near the 1.3400 mark, which should limit the downside near the 200-period SMA pivotal support around 1.3379. A convincing break below, however, would weaken the bullish bias and open the way to deeper losses. On the top side, bulls may look to the weekly top, around the 1.3500 psychological mark, as a reference point for potential resistance should the GBP/USD pair extend its advance.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
GBP/USD 1-hour 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, 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.
