GBP/USD Price Forecast: 20-day EMA acts as key barrier, downside likely below 1.3430

GBP/USD ticks higher to near 1.3500 amid weakness in the US Dollar.
Lower US Treasury yields have dragged the US Dollar.
Investors await BoE Pill’s speech and the US PPI data.

Sagar Dua FXStreet

The Pound Sterling (GBP) trades marginally higher to near 1.3500 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair ticks up as the US Dollar edges down amid sliding United States (US) Treasury yields. 10-year US bond yields have fallen to near 4%, the lowest level seen in over a year.

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.2% lower to near 97.60.

In Friday’s session, investors will focus on the US Producer Price Index (PPI) data for January, which will be published at 13:30 GMT. Investors will pay close attention to the US PPI data to get fresh cues on the Federal Reserve’s (Fed) monetary policy outlook.

Though investors have underpinned the Pound Sterling against the US Dollar, the former underperforms its other peers on firm expectations that the Bank of England (BoE) will deliver an interest rate cut in the March policy meeting. For more cues on the United Kingdom (UK) interest rate outlook, investors will focus on the BoE Chief Economist Huw Pill’s speech, which is scheduled at 13:00 GMT.

GBP/USD technical analysis

GBP/USD trades higher to near 1.3492 as of writing. The near-term bias stands neutral with a slight downside tilt as spot hovers just below the 20-day Exponential Moving Average near 1.3550.

The 14-day Relative Strength Index (RSI) hovers near the 40.00 level. The overall momentum seems muted unless the oscillator breaks below that level.

Initial resistance emerges at the 20-day EMA around 1.3550, with a daily close above this barrier needed to reopen the path toward the 1.3680 area and the 1.3830 January high. On the downside, immediate support is located at the February 19 low of 1.3434, aligned with recent lows, and a break below the same would expose a deeper pullback toward the 1.3360 region.

(The technical analysis of this story was written with the help of an AI tool.)

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

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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