The GBP/USD pair is trading flat near 1.3330 during Asian trading hours on Friday. Traders prefer to wait on the sidelines before the release of the headline US inflation report later on Friday. The delayed US Personal Consumption Expenditures (PCE) price index report for September could provide some hints about the path of the US interest rate.
Meanwhile, rising bets on an interest rate cut by the US Federal Reserve next week could weigh on the US dollar and create tailwinds for the major pair. According to the CME FedWatch tool, interest rate futures traders expect a roughly 89% chance of the federal funds rate being cut by a quarter of a percentage point by the Fed at its December meeting, to 3.50%-3.75%, up from just 63% a month ago.
On the other hand, concerns about the economic outlook in the UK and expectations of a faster-than-expected easing of monetary policy by the Bank of England may undermine the pound against the US dollar. The majority of analysts expect the Bank of England to cut interest rates to 3.75% in December, with markets likely to price in at 90%.
Technical analysis:
On the daily chart, the GBP/USD pair is trading at 1.3328. The pair holds above the 100 EMA at 1.3300, the average having stabilized after a previous decline, supporting a firmer tone. The price is hovering near the upper Bollinger band at 1.3348 with widening bands, indicating high volatility and upward pressure. The RSI at 61 shows positive momentum without overbought conditions.
Initial resistance is identified by the upper band at 1.3348, where a higher close may extend gains. Immediate support is in line with the 100 EMA at 1.3300, followed by the middle band at 1.3189 and the lower band at 1.3029. Staying above the average would keep the bias higher, while pulling back toward the middle range would slow the advance.
(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.
