GBP/USD Price Forecast: The initial support level emerges near 1.2350

GBP/USD trades on a weaker note around 1.2450 in Monday’s early European session.
The pair keeps the positive view above the 100-period EMA with a bullish RSI indicator.
The first upside barrier emerges in the 1.2500-1.2510 zone; the initial support level to watch is 1.2350.

Lallalit Srijandorn FXStreet

The GBP/USD pair remains under selling pressure near 1.2450 during the early European session on Monday. The renewed US Dollar (USD) demand amid the safe-have flows drags the major pair lower.

According to the 4-hour chart, the bullish outlook of GBP/USD prevails as the major pair is above the key 100-period Exponential Moving Average (EMA). The upward momentum is reinforced by the Relative Strength Index (RSI), which stands above the midline around 64.70, indicating that further upside looks favorable.

On the bright side, the immediate resistance level is seen at the 1.2500-1.2510 region, representing the psychological level and the upper boundary of the Bollinger Band. A decisive break above this level could pave the way to 1.2551, the high of January 6. The next upside barrier to watch is 1.2607, the high of December 30, 2024.

On the downside, the crucial support level emerges at 1.2350, the 100-period EMA. A breach of the mentioned level could expose 1.2250, the lower limit of the Bollinger Band. Further south, The next contention level is located at 1.2160, the low of January 20.

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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