Consequently, the Pound Sterling experienced incredible strength against all other currencies in the foreign exchange market. It remains well supported near its monthly high of 1.3385 against the US Dollar. Before the start of the European trading session on Friday, the currency was 0.2% stronger, trading around 1.3360 versus the Greenback. The US Dollar has pulled back this week from its near five-week low. This about-face has led to a significant increase in the performance of GBP/USD, more affectionately referred to as ‘Cable’.
The recent increase in the Pound can be attributed to a number of other factors. Leading the way were both the UK budget released on November 26, as well as the stronger than expected upward revision of the S&P Global Purchasing Managers’ Index (PMI) data for November. These forms of progress have given a nice shot of hopeful investor sentiment, creating an overall positive bias for the British currency.
Technical Indicators Support Bullish Momentum
The GBP/USD remains well supported, with price action above the ascending 20-day Exponential Moving Average (EMA) at 1.3227. Even with this trend, the immediate future looks bright. Even as the price stays largely above this important metric, momentum is still strong enough pushing in favor of continuation and additional gains. Furthermore, the 14-day Relative Strength Index (RSI) stands at 62.77 as of now, indicating strong bullish momentum in the market.
A close on the daily above the 50% Fibonacci retracement at 1.3402 would further cement the bullish case. Further upside is possible in this move, going for the October 17 high at 1.3471. Traders will be watching these technical levels like hawks. Or in short, they want to measure how the Pound Sterling might move in the future, and relative to the US Dollar.
The pound sterling has been rising consistently for more than a week. It’s beating its major competitors in the foreign exchange market. The UK budget statement last month proved to be a high point. What’s influenced this performance? Aside from the increased PMI numbers, a few factors have played a big role.
The Impact of US Dollar Weakness
The US Dollar has struggled in recent months. It has now rolled over to about 98.75 on the US Dollar Index (DXY), which measures the Greenback’s value against six other major currencies. This recent retreat has given extra support for the Pound Sterling, giving it room to benefit from the stronger trend of a weakening dollar.
According to recent market analysts, persistent dovish expectations from the Federal Reserve are playing a key role in the dollar’s fall. Worsening conditions in the US labor market have raised alarm. As a result, markets and analysts alike are increasingly speculating on the need for a tightening in monetary policy. While investors play their cards to deal with this new reality, the Pound has gained from its constructive comparative posture.
Future Outlook for the Pound Sterling
Looking forward, all eyes are now on the next meeting of the Bank of England (BoE), which is due to take place on December 18. Market participants have been put on notice. They think that the UK’s central bank will soon have to lower interest rates to address the deteriorating job conditions in the UK. Conversation between a handful of BoE members has indicated some disagreement on pursuing that path.
The Pound Sterling remains a significant player in global finance, being the fourth most traded currency in foreign exchange markets, accounting for approximately 12% of all transactions, averaging around $630 billion daily as per 2022 data. Major trading pairs with GBP as a base currency are GBP/USD and EUR/GBP. Traders call GBP/JPY ‘Dragon.’
As market participants continue to assess both domestic and international factors influencing currency movements, analysts will closely monitor how these elements interact with current trends and technical indicators.