GBP/USD Price Forecast: Declines below 1.3400 as bearish momentum persists below 100-day SMA
- GBP/USD softens to around 1.3375 in Monday’s early European session.
- The negative outlook for the pair remains intact below the 100-day SMA, with bearish RSI momentum.
- The first upside barrier emerges at 1.3435; the initial support level to watch is 1.3355.
The GBP/USD pair loses traction to near 1.3375 during the early European trading hours on Monday. The US Dollar (USD) strengthens against the British Pound (GBP) after the US Federal Reserve (Fed) delivered a hawkish hike last week.
The US central bank decided to raise its benchmark interest rate by 25 basis points (bps) to a 3.75%–4.00% range at its September policy meeting. Fed penciled in an additional hike later this year, steps aimed at containing inflation.
Traders now see a 56.5% probability of another US rate hike when the central bankers meet next in October, according to the CME FedWatch tool.
On the UK front, the Bank of England (BoE) kept the interest rates at 3.75% last week, but also predicted that inflation could top 4% early next year. J.P.Morgan analysts expect the UK central bank to raise interest rates by 25 bps in February, but warn of further tightening if the Iran war continues.
UK political backdrop seen as supportive for Pound
Strategists at Scotiabank note that the political backdrop in the UK remains a source of support for the Pound, observing that “the narrative remains constructive as market participants and media signal ongoing confidence in the government’s efforts to maintain their commitment to fiscal responsibility.” This sustained confidence in fiscal discipline is seen as an important pillar underpinning broader sentiment toward UK assets.
Technical Analysis: GBP/USD keeps a bearish vibe below the 100-day SMA
In the daily chart, GBP/USD retains a bearish near-term bias as it holds beneath the 100-day moving average and the Bollinger midline. Price is hovering just above the lower Bollinger band, indicating downside pressure, while the Relative Strength Index (14) around 35 hints at weak momentum, not yet deeply oversold but consistent with prevailing selling interest.
On the topside, initial resistance is seen at the 100-day moving average at 1.3435, followed by the Bollinger midline near 1.3505. The next hurdle is seen at the upper band close to 1.3655, where a break would be needed to ease the broader downside bias.
On the downside, the lower limit of Bollinger band at 1.3355 offers immediate support. A clear drop below this area would open the way for further losses toward the September 18 low of 1.3335, followed by the July 28 low of 1.3273.
(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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