GBP/USD Price Forecast: Edges higher near 1.3250, but technical tone stays bearish below 100-day SMA
- GBP/USD gains ground to near 1.3240 in Monday’s early Asian session.
- The negative outlook for the pair prevails below the 100-day SMA, with bearish RSI momentum.
- The immediate resistance level emerges at 1.3280; the first downside target to watch is 1.3180.
The GBP/USD pair trades in positive territory around 1.3240 during the early European trading hours on Monday. The US Dollar (USD) softens against the British Pound (GBP) as markets continue to assess the US Federal Reserve (Fed) rate hike path. An escalating Middle East conflict kept traders wary ahead of key US inflation data later this week that will influence monetary policy.
The Saudi-led coalition said on Sunday that an unidentified projectile hit a passenger terminal at King Khalid International Airport in Riyadh, per Bloomberg. The Houthis swiftly claimed the attacks, saying they were a response to “Saudi aggression.”
"We expect the Houthis to continue their attacks on Saudi Arabian energy assets, supporting gains in the oil price and the USD," analysts at Commonwealth Bank of Australia said in a note.
The US Consumer Price Index (CPI) report will be published on Wednesday, followed by the Producer Price Index (PPI) and Retail Sales data on Thursday. If the reports come in hotter than expected, this could reinforce the Fed to raise the interest rate, supporting the Greenback.
BoE hikes back on the table as Commerzbank shifts EUR/GBP view
Analysts at Commerzbank argue that the UK’s “improved growth outlook should make it easier for the Bank of England to raise rates further in order to lean against inflation.” They note that “until now, we had not expected the BoE to hike rates again,” but “recent developments…have led us to conclude that a November rate hike is now more likely than not.” Moreover, they stress that they “do not expect it to be a one-off move,” and now “anticipate another hike in February, taking Bank Rate to 4.25%.”
Commerzbank points out that “the market is also pricing in two additional rate hikes by February, meaning our revised call should have little immediate market impact.” This shift also prompts a reassessment of their currency view: “we had previously expected sterling to weaken towards year-end. We now expect EUR-GBP to trade broadly sideways over the coming months.”
Looking further ahead, the bank cautions that “it is only from the second quarter of next year that we expect sterling to come under renewed pressure against the euro.” They highlight that “the market currently prices in two further rate hikes beyond the two moves we expect, implying four hikes in total.” In their view, “following the February meeting, we expect those additional tightening expectations to be gradually priced out, putting sterling under renewed pressure.”
BoE’s Mann flags need for higher rates as risk premia no substitute for policy
FXS Speechtracker shows a 9.4 score versus an 8.1 historic average for Mann, signalling a distinctly more hawkish tone than usual. The insistence that the Bank of England “needs to raise Bank Rate” and cannot rely on risk premia to do the work of monetary policy points to a preference for additional tightening even as financial conditions have already firmed.
By stressing that tighter conditions driven by higher inflation and policy-uncertainty premia are “no comfort,” Mann effectively argues that the Pound should be supported by higher policy rates rather than by risk-driven volatility. Acknowledging that the Bank of England may not have clearly articulated the reaction function to the Middle East shock, and that not publishing a baseline forecast in April “did not help,” underscores communication gaps that have likely amplified risk premia, reinforcing the case for a clearer, more hawkish stance to anchor expectations and support the Pound.
Technical Analysis: GBP/USD retains a negative tone below the key 100-day SMA
In the daily chart, GBP/USD keeps a bearish near-term tone as spot remains lodged beneath the 20-day simple moving average and the longer-term 100-day simple moving average. The pair is holding in the lower half of its Bollinger envelope, while the 14-day Relative Strength Index around 41 stays below the midline, hinting that downside pressure still outweighs recovery attempts.
On the topside, initial resistance level is located at the 20-day Bollinger middle band at 1.3280. A deisive break above this level could pave the way to h the 100-day simple moving average at 1.3400, en route to the upper boundary Bollinger band near 1.3432 forming a broader cap if buyers attempt a rebound.
On the downside, the next notable support level emerges at the October 1 low of 1.3180. Further south, the next contention level is seen at the lower limit of Bollinger band around 1.3130, where a clear break would open the door to a deeper slide within the broader corrective phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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