British Pound hangs near late July lows vs USD; looks to UK/US PMIs for fresh impetus
- GBP/USD remains depressed for the third straight day and seems vulnerable to slide further.
- The divergent BoE-Fed outlook has been a key factor behind the GBP’s underperformance.
- Geopolitical uncertainties underpin the safe-haven USD and validate the negative outlook.
The GBP/USD pair struggles to build on the previous day's modest bounce from the 1.3320 area, or its lowest since July 29, and sticks to a negative bias for the third straight day on Wednesday. Spot prices trade below mid-1.3300s during the Asian session and seem vulnerable to decline further amid a bearish fundamental backdrop.
The British Pound (GBP) continues with its relative underperformance against its American counterpart on the back of the Bank of England's (BoE) more cautious holding or gradual easing bias amid stagflation fears. In contrast, the US Federal Reserve (Fed) delivered its first interest rate increase in three years and signaled one more hike this year. The divergent outlook, in turn, is seen undermining the GBP, which, along with a bullish US Dollar (USD), acts as a headwind for the GBP/USD pair.
The Fed's hawkish outlook, along with persistent geopolitical uncertainties, assists the Greenback in preserving its recent strong gains to the highest level since July 30. USD bulls, however, opt to wait for further developments surrounding the Middle East crisis and keenly await a crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on Thursday. Adding to this, softer US bond yields might keep a lid on the buck and should help limit losses for the GBP/USD pair.
Crude oil prices fell to an over two-week low on Tuesday amid signs of diplomatic progress between the US and Iran. Adding to this, Iran has reportedly offered to unblock the Strait of Hormuz in return for a US military de-escalation, prompting traders to price out some of the geopolitical risk premium and easing inflation fears. This, in turn, keeps US bond yields depressed below multi-year highs and caps the Greenback, warranting caution before placing fresh bearish bets on the GBP/USD pair.
Traders now look forward to the release of flash PMIs from the UK and the US for a fresh impetus. Apart from this, speeches from influential FOMC members will drive the USD. Furthermore, the incoming geopolitical headlines should contribute to producing short-term trading opportunities around the GBP/USD pair. Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of bearish traders, suggesting that any attempted recovery move is more likely to be sold into.
GBP/USD daily chart
Technical Analysis
The GBP/USD pair keeps a capped tone beneath the 200-day Simple Moving Average (SMA) at 1.3454 and the mid-range Fibonacci retracement levels. Spot prices sit just under the 61.8% retracement at 1.3343, reinforcing a mild bearish bias. Meanwhile, initial support is seen at the 78.6% retracement at 1.3253, ahead of a deeper structural floor at 1.3139, which aligns with the recent swing low.
On the topside, immediate resistance emerges at 1.3343, the 61.8% Fibo. retracement, followed by the 50.0% level at 1.3406 and the 200-day SMA at 1.3454, before a higher barrier at the 38.2% retracement near 1.3469. Further up, the 23.6% level at 1.3547 and the cycle anchor around 1.3672 guard the broader bullish path.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
