Pound Sterling remains fragile against US Dollar
- The Pound Sterling is under pressure against the US Dollar on hopes that the Fed will hold interest rates steady this month.
- Fed’s Schmid stresses the need for a restrictive policy stance, citing inflation risks.
- Investors await UK employment and inflation data, releasing next week.
The Pound Sterling (GBP) trades with caution near its four-week low around 1.3360 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair is under pressure as the US Dollar (USD) trades firmly amid expectations that the Federal Reserve (Fed) will pause its monetary-easing campaign in the monetary policy meeting later this month.
At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto gains near its six-week high of 99.50 posted on Thursday.
Traders have almost priced in that the Fed will hold interest rates steady in the current range of 3.50%-3.75% in the January policy meeting, according to the CME FedWatch tool.
The speculation for the Fed holding interest rates steady is fuelled by the United States (US) price pressures remaining sticky. On Thursday, Kansas City Fed Bank President Jeffrey Schmid also said that the monetary policy needs to be “modestly restrictive” as “inflation is too hot”.
Meanwhile, the Pound Sterling is expected to stay on the sidelines as investors shift focus to the United Kingdom (UK) employment and Consumer Price Index (CPI) data, which will be released next week. Investors will pay close attention to UK data to get fresh cues on the Bank of England’s (BoE) monetary policy outlook.
GBP/USD technical analysis
In the daily chart, GBP/USD trades at 1.3384. Price sits below the 20-day Exponential Moving Average (EMA) at 1.3428, and the later has started to turn lower, capping rebounds.
The 14-day Relative Strength Index (RSI) at 46 (neutral) remains below its midline, affirming soft momentum. Measured from the 1.3793 high to the 1.3009 low, the 50% retracement at 1.3401 acts as nearby resistance, and a close above it could ease bearish pressure.
While the pair holds beneath the 20-EMA, the near-term bias leans lower, and rallies tend to fade under overhead barriers. If buyers regain traction with a daily close above the average, upside extension would face the 61.8% retracement at 1.3494. Failure to clear these hurdles would keep price action contained beneath resistance, preserving a consolidative tone.
(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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