GBP/USD Price Forecast: Stands firm near mid-1.3400s, seems poised to climb further

GBP/USD attracts buyers for the third straight day amid a broadly weaker US Dollar.
Concerns about the UK’s fiscal outlook and BoE rate hike bets cap gains for spot prices.
The technical setup favors bulls and backs the case for a further appreciating move.

Haresh Menghani FXStreet

The GBP/USD pair gains positive traction for the third consecutive day on Friday and moves further away from its lowest level since early August, around the 1.3250-1.3245 region touched earlier this week. Spot prices currently trade around mid-1.3400s, or a one-and-a-half-week high touched on Thursday amid a broadly weaker US Dollar (USD), though the intraday uptick lacks bullish conviction.

Tuesday's disappointing UK employment data fueled speculations that the Bank of England (BoE) could continue cutting rates gradually. This, along with concerns over the UK’s fiscal outlook ahead of the crucial Autumn budget in November, is holding back traders from placing aggressive bullish bets around the British Pound (GBP) and turning out to be a key factor acting as a headwind for the GBP/USD pair.

From a technical perspective, the overnight breakout through the 100-period Simple Moving Average (SMA) on the 4-hour chart and a subsequent move beyond the 38.2% Fibonacci retracement level of the recent pullback from an over two-month top set in September favor bullish traders. Moreover, oscillators on the 4-hour chart have been gaining positive traction and back the case for additional gains for the GBP/USD pair.

Hence, some follow-through rise towards the 50% Fibo. retracement level, around the 1.3480-1.3485 region, looks like a distinct possibility. This is closely followed by the 1.3500 psychological mark, which, if cleared, will be seen as a fresh trigger for bullish traders and allow the GBP/USD pair to climb further towards the next relevant hurdle near the 1.3545-1.3550 region, or the 61.8% Fibo. retracement level.

On the flip side, any corrective slide now seems to find decent support near the 1.3400 mark. A further pullback could be seen as a buying opportunity near the 1.3355 region (23.6% Fibo. level), below which the GBP/USD pair could accelerate the fall towards the 1.3300 round figure. The downward trajectory could extend further towards a two-and-a-half-month low, around the 1.3250-1.3245 region, touched on Tuesday.

GBP/USD 4-hour 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

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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