GBP/USD extends into a third day of declines ahead of UK CPI print

GBP/USD fell back below 1.3400 on Tuesday, accelerating a three-day bear slide.
A key technical turnaround has sent Cable bids into an accelerated backslide.
Key UK CPI inflation indicators due on Wednesday, followed US CPI on Friday.

Joshua Gibson FXStreet

GBP/USD stepped into a third straight bearish session on Tuesday, shedding weight and slipping back below the 1.3400 handle. Pound Sterling (GBP) traders are pulling back from their bids ahead of the latest round of Consumer Price Index (CPI) inflation data due from the UK on Wednesday, with the US side of the CPI data docket due on Friday.

Headline UK CPI inflation is expected to rose to 4.0% YoY in September, while core CPI is forecast to tick up to 3.7%. With UK inflation pressures still on the rise, the Bank of England’s (BoE) room to maneuver in the face of a steepening recessionary outlook is severely restricted.

US markets are facing less of the same problem, but could simply be less along the same spiral. US CPI inflation data due on Friday is expected to show a comparative increase in price pressures, with headline annualized CPI expected to rise to 3.1% from 2.9%. While US CPI moves are expected to match UK inflation changes, the figures remain low enough that the Federal Reserve (Fed) is still well on its way to delivering at least two more interest rate cuts before the end of the year.

GBP/USD price forecast

The GBP/USD daily chart shows the British pound trading around 1.3360, with recent price action suggesting a period of consolidation after a series of lower highs and higher lows. The pair remains caught between its 50-day Exponential Moving Average (EMA) near 1.3440 and the 200-day EMA around 1.3290, a range that reflects indecision among traders.

The Relative Strength Index (RSI) is currently hovering near 44, which indicates that momentum is leaning slightly bearish but not yet in oversold territory. This suggests sellers have an edge, though conviction remains moderate.

Price action has respected the 200-day EMA several times, showing it continues to act as a key dynamic support level. Meanwhile, rallies toward the 50-day EMA have struggled to gain traction, highlighting the importance of that level as near-term resistance.

Until the pair breaks decisively above 1.3450 or below 1.3290, GBP/USD is likely to remain range-bound. A close under the 200-day EMA could open the door toward the next key support around 1.3140, while a push above the 50-day EMA would bring the 1.3780 area back into view.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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