- GBP/USD struggles to capitalize on its gains registered over the past two days amid a modest USD strength.
- The optimism over US-China trade talks revives the USD demand amid some repositioning ahead of the FOMC.
- Bears need to wait for a sustained break below the 100-period EMA on the 4-hour chart before placing fresh bets.
The GBP/USD pair attracts some sellers during the Asian session on Wednesday and erodes a part of its weekly gains registered over the past two days, to the 1.3400 mark. The intraday slide is sponsored by a modest US Dollar (USD) strength and drags spot prices below mid-1.3300s in the last hour.
From a technical perspective, the GBP/USD pair earlier this week showed some resilience near the 1.3250-1.3245 support and bounced off the 100-period Exponential Moving Average (SMA) on the 4-hour chart. Moreover, oscillators on daily/hourly charts are holding in positive territory. This, in turn, suggests that any subsequent slide might be seen as a buying opportunity near the 1.3300 round figure and remain limited.
However, a convincing break below the 1.3250-1.3245 pivotal support could make the GBP/USD pair vulnerable and set the stage for some meaningful corrective slide from the vicinity of mid-1.3400s, or the highest level since February 2022, touched last month. Spot prices might then accelerate the fall towards the 1.3200 mark en route to the 1.3170-1.3165 support before eventually dropping to the 1.3100 round figure.
On the flip side, momentum beyond the 1.3400 mark might confront some resistance near the 1.3445 region, or the multi-year peak. A sustained strength beyond will be seen as a fresh trigger for bullish traders and allow the GBP/USD pair to reclaim the 1.3500 psychological mark. The subsequent move up has the potential to lift spot prices further towards the 1.3570-1.3575 region en route to the 1.3600 round-figure mark.
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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