GBP/USD Price Forecast: Reclaims 1.3400 amid a weaker USD; not out of the woods yet

GBP/USD gains some positive traction on Thursday amid a broadly weaker US Dollar.
The technical setup backs the case for the emergence of fresh sellers at higher levels.
A move beyond the 1.3465-1.3475 confluence is needed for bulls to retake control.

Haresh Menghani FXStreet

The GBP/USD pair attracts some buyers during the Asian session on Thursday and moves away from a nearly two-week trough, around the 1.3370 area touched the previous day. Spot prices climb further beyond the 1.3400 mark in the last hour and, for now, seem to have snapped a two-day losing streak amid a broadly weaker US Dollar (USD).

From a technical perspective, the recent repeated failures near the 100-period Simple Moving Average (SMA) and the downfall along a descending channel since the beginning of this month favor the GBP/USD bears. Furthermore, negative oscillators on 4-hour/daily charts suggest that any subsequent move up might still be seen as a selling opportunity and run the risk of fizzling out rather quickly.

Hence, it will be prudent to wait for a sustained strength above the 1.3465-1.3475 confluence hurdle – comprising the top end of the descending channel and the 100-period SMA – before positioning for further gains. Some follow-through buying beyond the 1.3500 psychological mark could lift the GBP/USD pair above the 1.3525-1.3530 supply zone, towards the next relevant barrier near the 1.3575-1.3580 area.

On the flip side, the 1.3370 area, representing the lower boundary of the downward sloping channel, might continue to protect the immediate downside, below which the GBP/USD pair could retest the 1.3330-1.3325 zone, or a nearly two-month low touched in September. The subsequent fall below the 1.3300 round figure will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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