- GBP/USD lost its traction and dropped below 1.2650 on Wednesday.
- The 200-day SMA aligns as strong support near 1.2600.
- Technical sellers could refrain from committing to an extended slide in the absence of fundamental drivers.
GBP/USD climbed toward 1.2670 on Tuesday but failed to preserve its bullish momentum in the second half of the day. The pair trades below 1.2650 in the European session on Wednesday. Although the technical outlook points to a buildup of bearish momentum, sellers could refrain from committing to an extended slide below 1.2600, unless it’s driven by a fundamental development.
The US Dollar held resilient against its major rivals in the second half of the day on Tuesday, supported by the cautious mood and Durable Goods Orders data for February, which came in slightly higher than forecast.
Early Wednesday, the UK’s FTSE 100 Index trades modestly lower, while US stock index futures rise between 0.3% and 0.4%. In case major equity indexes in the US open higher and gather bullish momentum, the USD could have a hard time finding demand as a safe-haven.
The US economic calendar will not offer any data releases that could potentially influence the USD’s valuation and drive the pair’s action. Federal Reserve (Fed) Governor Christopher Waller, who argued back in late February that the Fed was in no rush to cut the policy rate, is scheduled to speak in the American session.
GBP/USD Technical Analysis
The 200-day Simple Moving Average (SMA) aligns as strong support near 1.2600. In case the pair falls below that level and starts using it as resistance, an extended slide toward 1.2550 (beginning point of the latest uptrend) and 1.2500 (psychological level, static level) could be seen.
On the upside, first resistance is located at 1.2640 (100-day SMA) before 1.2670-1.2680 (Fibonacci 61.8% retracement of the latest uptrend, 200-period SMA on the 4-hour chart, 50-day SMA) and 1.2710 (Fibonacci 50% retracement).
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, aka ‘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.