- GBP/USD drops below the 20-day SMA, with sellers gaining short-term control as the RSI approaches a break below 50.
- Key support lies at 1.3044 (Jul 17 high), with further downside risks towards 1.2995 (50-day SMA) and 1.2894 (Mar 8 high).
- Buyers need to hold above 1.3150 for a recovery, targeting resistance at 1.3111 and the psychological level of 1.3200.
The British Pound fell during the North American session, down 0.30% after UK data showed the economy is slowing. This and a rise in US inflation weighed on GBP/USD, which is trading at 1.3035 after hitting a daily high of 1.3111.
GBP/USD Price Forecast: Technical Outlook
The uptrend remains intact, but GBP/USD’s drop below the 20-day moving average (SMA) gives sellers a short-term advantage.
The Relative Strength Index (RSI) is clinging to the bullish side, but a break below the neutral line of 50 looms, which could accelerate the decline and threaten to clear key support levels.
If GBP/USD clears 1.3050, the first support would be the July 17 high at 1.3044. On further weakness, the pair could drop to the 50-day SMA at 1.2995. A break of the latter will expose the March 8 daily high at 1.2894.
On the contrary, if buyers sustain the spot price above 1.3150, it could pave the way for a recovery. The first resistance would be 1.3111, followed by the psychological level of 1.3150, before breaking the 1.3200 figure.
GBP/USD Price Action – Daily Chart
The British Pound FAQs
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 currency unit in the world, accounting for 12% of all transactions and an average of $630 billion a day, as of 2022.
Its key currency pairs are GBP/USD, also known as the “Cable,” which accounts for 11% of the forex market, GBP/JPY, or the “Dragon” as it is known to traders (3%), and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the British Pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on achieving its main objective of “price stability”, i.e. a stable inflation rate of around 2%. Its main tool for achieving this is the adjustment of interest rates.
When inflation is too high, the Bank of England tries to contain it by raising interest rates, making credit more expensive for individuals and businesses. This is generally positive for the GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation is too low, it is a sign that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to make credit cheaper, so that companies borrow more to invest in growth-generating projects.
The data released gauges the health of the economy and can influence the value of the Pound. Indicators such as GDP, manufacturing and services PMIs, and employment can influence the direction of the Pound.
A strong economy is good for the British Pound. Not only does it attract more foreign investment, but it may encourage the Bank of England to raise interest rates, which will directly strengthen the British Pound. Conversely, if economic data is weak, the British Pound is likely to fall.
Another significant indicator for the pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period.
If a country produces highly sought-after exports, its currency will benefit exclusively from the additional demand created by foreign buyers who wish to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
