- GBP/USD trades deep in negative territory below 1.2600 on Friday.
- The near-term technical outlook points to oversold conditions.
- Bank of England left the policy rate unchanged at 5.25% as expected.
GBP/USD came under heavy bearish pressure on Thursday and lost more than 1% on a daily basis for the first time since October. The pair continues to push lower on Friday and was last seen losing more than 0.5% below 1.2600.
The Bank of England maintained the bank rate at 5.25% as widely anticipated. The policy statement revealed that eight policymakers voted in favor of a hold, while one policymaker wanted to lower the policy rate by 25 basis points. The BoE refrained from offering any clues regarding the timing of the policy pivot.
BoE Governor Andrew Bailey said on Friday that they don't need to wait for inflation to drop to 2% before cutting rates. He added that markets can anticipate more than one interest rate cut this year and reiterated that he is increasingly confident inflation is heading towards the target.
In the meantime, the US data showed on Thursday that the business activity in the private sector continued to expand at a health pace in early March, with the preliminary S&P Global Composite PMI coming in at 52.2 The details of the survey pointed to stronger input inflation and helped the US Dollar gather strength against its rivals.
Pound Sterling price this week
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.56% | 1.11% | 0.15% | 0.60% | 1.71% | 1.28% | 1.87% | |
| EUR | -0.58% | 0.53% | -0.45% | 0.02% | 1.11% | 0.71% | 1.29% | |
| GBP | -1.12% | -0.55% | -0.96% | -0.52% | 0.61% | 0.18% | 0.76% | |
| CAD | -0.14% | 0.42% | 0.95% | 0.45% | 1.56% | 1.13% | 1.72% | |
| AUD | -0.60% | -0.03% | 0.51% | -0.45% | 1.11% | 0.68% | 1.30% | |
| JPY | -1.74% | -1.17% | -0.55% | -1.59% | -1.13% | -0.44% | 0.15% | |
| NZD | -1.31% | -0.73% | -0.18% | -1.14% | -0.69% | 0.43% | 0.58% | |
| CHF | -1.90% | -1.33% | -0.76% | -1.75% | -1.29% | -0.16% | -0.58% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The US economic docket will not offer any high-impact data releases ahead of the weekend. Federal Reserve Chairman Jerome Powell will deliver opening remarks at the Fed Listens event.
It's worth noting that the UK's FTSE 100 Index is up about 0.8% on the day and US stock index futures trade modestly higher. If risk flows start to dominate the action in the second half of the day, the USD could struggle to gather further strength and help GBP/USD find a foothold.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declined below 30 on Friday, pointing to oversold conditions.
The pair was last seen trading below 1.2600, where the 200-day Simple Moving Average is located. In case the pair recovers above this level and stabilizes there, sellers could be discouraged. In this scenario, the pair could extend its correction toward 1.2670-1.2680 (Fibonacci 61.8% retracement of the latest uptrend, 200-period SMA on the 4-hour chart).
On the downside, 1.2550 (beginning point of the uptrend) aligns as important support before 1.2500 (psychological level).
(This story was corrected on March 22 at 10:07 GMT to say that eight policymakers voted for a hold, not seven.)
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.
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