GBP/USD Price Forecast: Extends recovery to near 20-day EMA as US Dollar weakens
- GBP/USD clings to weekly gains near 1.3565 amid weakness in the US Dollar.
- Investors worry that trading partners of the US could demand revisions in trade deals.
- The BoE is expected to reduce interest rates in its March policy meeting.
The Pound Sterling (GBP) holds onto weekly gains around 1.3565 against the US Dollar (USD) during the Asian trading session on Thursday. The GBP/USD pair trades firmly as the US Dollar remains under pressure due to uncertainty surrounding the United States (US) trade policy outlook.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally lower to near 97.55.
The US trade policy uncertainty stemmed from the Supreme Court’s (SC) ruling against President Donald Trump’s tariffs, in which they were called “unlawful” for being backed by economic emergency powers.
Meanwhile, market participants are worried that Washington’s trading partners could ask for trade deal revisions, in a way to benefit from the SC’s ruling. However, US President Trump has already warned of steeper levies if any nation intends to dishonour trade deals.
On the Pound Sterling front, the outlook for the currency is broadly uncertain as the Bank of England (BoE) is expected to deliver an interest rate cut in its monetary policy meeting in March.
GBP/USD technical analysis
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GBP/USD trades firmly at around 1.3565 at the press time. The pair holds around the 20-day Exponential Moving Average, which is at 1.3562, capping directional conviction.
Price action has stabilized after the pullback from mid-month highs, with the latest candles clustering around the average and signaling consolidation rather than a clear trend extension.
The 14-day Relative Strength Index (RSI) in the 40.00-60.00 range shows neutral momentum, reinforcing a sideways tone.
Initial support emerges at the February 19 low of 1.3434, the nearest swing low, and a downside move towards the January 19 low at 1.3344 is possible if the price fails to hold the same. On the upside, the pair could attempt to revisit an almost four-year high of 1.3869 if it delivers a decisive breakout above the February 11 high of 1.3712.
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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