Yesterday the British Pound (GBP) fell a small amount compared to the US Dollar (USD). Investors nervously awaited upcoming economic reports out of the United States and debated when the Bank of England (BoE) might change course on monetary policy. In European trading hours, the GBP/USD pair quickly retraced down towards 1.3400. That was on the heels of it reaching a three year high of 1.3445 earlier in the day.
Despite the recent correction, the overall GBP/USD pair outlook hasn’t changed, and it’s still considered bullish. Specifically, short-to-long Exponential Moving Averages (EMAs) are screaming bullish trend. The 14-day Relative Strength Index (RSI) signals a bullish recovery mode. It recovered from a drop to 60.00, showing that new bullish momentum had returned.
Market Dynamics and Economic Releases
Traders are preparing for a slew of key U.S. economic data reports. That fast approaching deadline has been the cause of the modest GBP/USD drop as trader sentiment begins to change. Meanwhile, the US Dollar has held firm as uncertainty grows surrounding US-China trade relations. As of writing, the US Dollar Index (DXY) is trading at 99.20, well within Monday’s range.
The market is especially jittery with any comments from US officials related to ongoing trade talks. US Treasury Secretary Scott Bessent emphasized the responsibility of China in addressing trade tensions, stating:
“I believe that it’s up to China to de-escalate, because they sell five times more to us than we sell to them.”
This announcement is a reminder of how powerful trade relations can be in impacting currency values. That includes the value of the GBP/USD exchange rate.
Bank of England’s Influence on GBP
The recent GBP swings are largely connected to monetary policy expectations related to the actions of the Bank of England. Traders are now betting that the BoE might discuss cutting interest rates at its May policy meeting. Such speculation only added to the downward pressure on the Pound Sterling.
Megan Greene, a BoE policymaker, raised concerns regarding “weak productivity” and “risks to the labor market,” which may further influence the central bank’s approach to interest rates. As these macroeconomic conditions develop, they have a real potential to affect the GBP/USD exchange rate.
The Pound Sterling has strong claims to be the most historically entrenched currency on the planet. Indeed, sometimes it’s called the world’s oldest currency, first issued in 886 AD. The official currency of the United Kingdom, home to the world’s third largest financial center and perhaps most active global finance capital. The GBP/USD pair by itself accounts for around 11% of all foreign exchange transactions.
Technical Analysis and Key Levels
The GBP/USD currency pair faces looming resistance at 1.3600. On the downside, support is firm just below the April 3 high, at about 1.3200. Traders should keep a close eye on these levels as they look to navigate possible volatility. This volatility can be driven by macroeconomic data releases and central bank communications.
Bullish sentiment remains well above normal. This is magnified by the general bullish trend depicted by moving averages and in technical indicators such as the bullish RSI. This will all change in an instant if the market overreacts to incoming US economic data.
As traders remain cautious yet optimistic about the Pound’s prospects, they will be keenly focused on signs that may signal a change in the BoE’s stance or any developments in US-China trade relations.