The GBP/USD pair is trading lower around 1.3225 during the early European session on Monday. Increased bets on an interest rate cut by the Federal Reserve (Fed) in December may weigh on the dollar and determine the downside for the major pair. Traders are now pricing in 87% odds that the Fed will cut rates by 25 basis points when it meets next week, according to the CME FedWatch tool.
UK Chancellor Rachel Reeves unveiled the UK’s autumn budget last week, which includes tax rises and changes to business rates, benefits and pensions. Positive sentiment from increased financial clarity could lead to a modest rise for GBP/USD in the near term.
Technical analysis:
On the daily chart, the GBP/USD pair is trading at 1.3225. The 100 SMA is sloping lower at 1.3307, capping the upside and maintaining the broader downtrend. The recovery will need a sustained close above this average to relieve the downward pressure. The price is in the upper half of the Bollinger envelope with the bands widening modestly, indicating improving momentum. The RSI remains at 52.88 above 50 but has retreated from 54.94, cooling the near-term rally. Immediate resistance is the upper band at 1.3273, while the middle band at 1.3147 and the lower band at 1.3020 act as support.
Staying below the bearish 100-EMA keeps bulls in retreat. A decisive rise above the upper band of the Bollinger Band may open the way towards this moving average. Failure to clear the range will keep the pair rotating back towards the middle line inside the envelope. The RSI stabilizing above 50 supports a moderate upward bias, but a break back below the threshold could pull the price towards the lower band, leaving the broader trend leaning south.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
Frequently asked questions about the pound sterling
The British Pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most popular foreign exchange (FX) trading unit in the world, accounting for 12% of all transactions, averaging $630 billion per day, according to data for 2022. The main trading pairs are GBP/USD, also known as “Cable”, which accounts for 11% of FX, GBP/JPY, or “Dragon” as traders know it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The single most important factor affecting the value of the pound sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its primary objective of “price stability” – a stable inflation rate of around 2%. The primary tool for achieving this is adjusting interest rates. When inflation is too high, the Bank of England will try to rein it in by raising interest rates, making it more expensive for individuals and businesses to obtain credit. This is generally positive for the pound, as higher interest rates make the UK a more attractive place for global investors to put their money. When inflation falls to a very low level, it is a sign that economic growth is slowing. In this scenario, the Bank of England would consider lowering interest rates to reduce the cost of credit so that companies borrow more to invest in growth-generating projects.
Data releases measure the health of the economy and can affect the value of the British pound. Indicators such as GDP, manufacturing PMIs, services and employment can all influence the direction of the pound. A strong economy is good for the pound. Not only does it attract more foreign investment, but it may encourage the Bank of England to raise interest rates, which will directly strengthen sterling. Otherwise, if economic data is weak, the British pound is likely to fall.
Another important data release for the British Pound is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a certain period. If a country produces highly sought-after exports, its currency will take full advantage of the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
