GBP/USD Price Forecast: Stability above 20-day EMA backs further upside
- GBP/USD edges down to near 1.3380 as the US Dollar ticks higher.
- The FOMC minutes will likely influence the Fed’s interest rate expectations.
- A smooth UK leadership transition appears to be supporting the British Pound.
The British Pound (GBP) ticks lower to near 1.3380 against the US Dollar (USD) during the European trading session on Tuesday. The GBP/USD pair edges down as the US Dollar gains slightly; however, the Cable is broadly upbeat.
At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.1% higher to near 100.90.
The US Dollar is expected to trade cautiously as investors await the Federal Open Market Committee (FOMC) minutes of the June policy meeting, which will be released on Wednesday. Investors will closely read FOMC minutes to get fresh cues regarding the Federal Reserve’s (Fed) monetary policy outlook.
In the United Kingdom (UK), firm hopes that ongoing fiscal principles will continue despite the leadership transition are supporting the British Pound. Andy Burnham, the newly elected Member of Parliament and Mayor of Greater Manchester, is the front-runner for UK leadership after Prime Minister (PM) Keir Starmer’s resignation.
GBP/USD technical analysis
GBP/USD trades at around 1.3380 at press time. The Cable has shown a stalwart rally after attracting significant buying interest near 1.3140 two weeks back. The pair holds a constructive near-term tone as it remains above the 20-day Exponential Moving Average (EMA) at 1.3320.
Momentum is mildly positive, with the Relative Strength Index (14) at 55.7, hinting that buyers retain control without the market appearing overstretched.
On the topside, the next key hurdle is the downward-sloping resistance trend line, which comes in around 1.3526 and caps the broader recovery. On the downside, initial support is seen at the 20-day EMA at 1.3320 ahead of the June low near 1.3140.
(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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