GBP/USD caught a weak bounce off the 1.3300 handle on Monday, taking the pair’s first bullish candle in six straight trading sessions and keeping Cable bids just north of the 200-day exponential moving average (EMA).
Despite the last-minute push to close the bearish slide, the short-term momentum is unlikely to result in any significant changes with the looming Federal Reserve System (Fed) interest rate decision.
The Fed’s upcoming rate call, due on Wednesday, is widely expected to be another quarter-point rate cut. After months of kicking around, the Fed finally launched a new rate cut plan at its previous meeting, and markets are firmly convinced that the Fed will make a second cut in a row. this week. The key takeaways from this week’s Fed rate decision will be how likely the Fed is to cut rates for the third time in a row in December.
GBP/USD Price Prediction
GBP/USD it continues to trade under pressure, holding below the 50-day EMA at 1.3428, while finding short-term support around the 200-day EMA at 1.3278. The pair showed limited continuation after a small bounce from last week’s low of 1.3250, leaving the broader downtrend intact.
Momentum remains weak, with sellers fending off any push towards 1.3400. A clear move below 1.3250 would reveal the 1.3150 area, while a rally above 1.3450 would be needed for a move in the near term view.
RSI near 43 signals muted momentum with room for both directions. Until the price breaks out of this narrow range, trading is likely to remain choppy.
GBP/USD Daily Chart
Frequently asked questions about the pound sterling
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 foreign exchange (FX) unit in the world, accounting for 12% of all transactions, averaging $630 billion per day, according to data from 2022. Its key trading pairs are GBP/USD, also known as “Cable”, which accounts for 11% of FX, GBP/JPY or “Dragon” as it is known to traders (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 monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary objective of “price stability” – a stable rate of inflation around 2%. Its primary tool to achieve this goal is the adjustment of interest rates. When inflation is too high, the BoE will try to keep it in check by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for the 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 of slowing economic growth. In this scenario, the BoE will consider cutting interest rates to make credit cheaper so businesses borrow more to invest in growth-generating projects.
The data released assesses the health of the economy and can affect the value of the pound sterling. Indicators such as GDP, manufacturing and services PMI and employment can influence the direction of the GBP. A strong economy is good for Sterling. Not only will this attract more foreign investment, but it may encourage the BoE to raise interest rates, which will directly strengthen the GBP. Otherwise, if the economic data is weak, the pound sterling is likely to fall.
Another important data release for the pound sterling is the trade balance. This indicator measures the difference between what a country earns on exports and what it spends on imports over a given period. If a country produces a highly sought-after export, its currency will benefit purely from the extraordinary demand created by foreign buyers looking to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa a negative balance.
