On Monday, the GBP/USD currency pair popularly referred to as “Cable,” roared higher in unprecedented fashion. This bullish bounce happened mostly due to a drop of the US Dollar in the general market. This possible movement would be extremely significant for GBP/USD. The currency pair has been gradually falling since early January after failing to defend the 1.3550 handle. The Pound Sterling (GBP) is the United Kingdom’s official currency and has the distinction of being the world’s oldest currency still in use, having first entered circulation in 886 AD. As one of its main trading pairs, GBP/USD accounts for roughly 11% of all foreign currency trades worldwide.
The price action over the last few weeks has provided GBP/USD with a very firm new base. It is currently sitting just above the 50-day Exponential Moving Average (EMA) and immediately below the 1.3400 handle. While the recent rebound may provide a reprieve from overt bearishness, GBP/USD outlook remains bearish overall. A range of economic headwinds and geopolitical currents are fueling this outlook.
Current Trends and Technical Analysis
Since the start of 2023, GBP/USD has shown a very clear downward trend. In early January, the market’s inability to close above the all-important 1.3550 level proved the signal. This breakdown marked a reversal in tone for the two. As of this writing, the Stochastic Oscillator is suggesting there’s still room for additional downside. This continues even as it approaches the oversold line.
Although the Monday bullish bounce looks encouraging, the move reiterates deeper market forces at play. This is especially true when considering the context of the US Dollar. The dollar’s recent decline is the result of a potent mix of geopolitical tensions coming home to roost and the release of weak economic data. These influences have led to a unique environment where, even with a bearish lean, GBP/USD could potentially take advantage of short-term opportunities.
Economic Influences on GBP/USD
The outlook for GBP/USD is heavily driven by US and UK economic data. Important US gauges, such as the Personal Consumption Expenditure Price Index (PCE), play a big role in shaping market expectations. They create incentives for investors that distort trading behavior. Recent discussions surrounding US trade policies, including proposals related to Greenland, have further complicated perceptions of the US economy’s stability.
Across the Atlantic, UK economic data continues to be the key in steering GBP/USD’s course higher or lower. The Consumer Price Index (CPI) inflation figures and Purchasing Manager Index (PMI) survey results are essential metrics that help traders gauge the health of the UK economy. As a result, any major surprises or deviations from the forecast in these indicators can cause instant volatility in GBP/USD’s price action.
Market Sentiment and Future Outlook
Though Monday’s bounce provides a welcome relief for GBP/USD traders, sentiment is still wary. Looking ahead as market participants look to these new realities, they are staying distinctly focused on US and UK economic developments. We’ve been arguably in a bearish bias for GBP/USD in recent weeks. Traders need to be especially watchful for signs that more retracement—likely deep and painful—is ahead.