GBP/USD Price Forecast: Extends recovery to near 1.3370 ahead of Fed-BoE policy
- GBP/USD gains to near 1.3370 as the US Dollar trades cautiously ahead of the Fed’s monetary policy.
- Both the Fed and the BoE are expected to hold interest rates steady this week.
- Analysts at JP Morgan expect the BoE to shift to an extended pause amid higher gas prices.
The Pound Sterling (GBP) extends its winning streak against the US Dollar (USD) for the third trading day on Wednesday. The GBP/USD pair trades 0.1% higher to near 1.3370 during the early European trading session as the US Dollar is under pressure ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT.
At the press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades with caution near its three-day low around 99.50.
According to the CME FedWatch tool, traders are confident that the Fed will hold interest rates steady in the current range of 3.50%-3.75%. Traders see the Fed maintaining the status quo as higher oil prices due to energy supply concerns have de-anchored inflation expectations globally.
This week, major triggers for the British currency will be the United Kingdom (UK) employment data for three months ending in January and the Bank of England’s (BoE) interest rate decision on Thursday.
According to a report from JP Morgan, the BoE will keep interest rates steady during the entire year, citing that price pressures are unlikely to return to the 2% target amid higher gas prices.
GBP/USD technical analysis
GBP/USD rises to near 1.3370 in the European trade. However, the pair remains broadly in a clear bearish territory after repeated failures at the descending resistance trend line plotted from the January 29 high of 1.3847 and a sustained close below the 20-day Exponential Moving Average (EMA), which now caps the upside near 1.3410.
Price action has carved out a sequence of lower highs and lower lows, confirming the dominance of sellers despite the latest stabilization above 1.3320. The RSI has recovered from the negative territory, ranging from 20.00 to 40.00, to the 40.00-60.00 neutral zone, signaling fading downside momentum but not yet a shift to bullish control.
Initial resistance is aligned at 1.3410, where the 20-day EMA converges with the broken 1.3400 trend-line area, and a break above this zone would expose the 1.3500 region next. On the downside, immediate support emerges at 1.3320, ahead of last week’s trough near 1.3220, which guards a deeper slide toward 1.3100. As long as the price trades below 1.3410, rallies are vulnerable to selling pressure, and the broader short-term structure favors renewed tests of support.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling 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 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).
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.
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.
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.
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