GBP/USD Price Analysis: Struggles near multi-week low, around 1.3430 ahead of US CPI
- GBP/USD enters a bearish consolidation phase near a multi-week low touched earlier this Tuesday.
- The fundamental and technical setup backs the case for a further near-term depreciating move.
- Traders, however, seem reluctant and opt to wait for the latest US consumer inflation figures.
The GBP/USD pair consolidates near the 1.3430-1.3435 region, just above a three-week low touched during the Asian session on Tuesday as traders keenly await the release of the US consumer inflation figure. Meanwhile, the fundamental backdrop seems tilted in favor of bears and suggests that the path of least resistance for spot prices is to the downside.
The disappointing macro data released from the UK last week reinforced bets that the Bank of England (BoE) could cut interest rates again in August. This marks a significant divergence in comparison to diminishing odds for an immediate rate cut by the Federal Reserve (Fed) and validates the negative outlook for the GBP/USD pair. That said, a modest US Dollar (USD) pullback from a multi-week high lends support to the currency pair.
From a technical perspective, last week's breakdown below the 100-period Simple Moving Average (SMA) on the 4-hour chart was seen as a key trigger for bearish traders. However, the Relative Strength Index (RSI) on the said chart is already flashing oversold conditions. This makes it prudent to wait for some intraday consolidation or a modest bounce before positioning for any further near-term depreciating move for the GBP/USD pair.
That said, any attempted recovery is likely to be sold into around the 1.3470 region. This, in turn, should cap spot prices near the 1.3500 psychological mark, which should now act as a key pivotal point. Hence, a sustained strength beyond the said handle could trigger a short-covering move and lift the GBP/USD pair towards the 1.3550 intermediate hurdle en route to the 1.3600 round figure and the 1.3620-1.3625 supply zone.
On the flip side, bears might wait for a convincing break below the 1.3400 mark before placing fresh bets. The GBP/USD pair might then accelerate the fall towards the next relevant support near the 1.3355 region before eventually dropping to the 1.3300 round figure. The downward trajectory could extend further towards the 100-day Simple Moving Average (SMA) support, currently pegged near the 1.3265 region.
GBP/USD 4-hour chart
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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