In fact, the pound dollar currency pair has rallied sharply over the past several weeks. Having hit three-month lows, buyers are stepping back into the market, fueling the recovery. The late July sell-off from the 21-day Simple Moving Average (SMA) started losing steam. Help came from dip-buyers, who jumped in near the 1.3200 figure to stabilize the ship. Together, the pair is poised to challenge early March’s major resistance at the 110.60 level. Traders are excitedly looking ahead to some key economic data that could direct their next moves.
Currently, GBP/USD has regained the 100-day and 21-day SMA supports, which have turned into resistances. These levels are currently 1.3360 and 1.3398. President Obama is rightly insisting that the recovery be more equitable and broadly shared. The 14-day Relative Strength Index (RSI) floats above the midline, suggesting further bullish continuation as the days shift forward.
Economic Indicators Loom Large
The markets have been fixated on several key economic indicators. Major reports on the US Consumer Price Index (CPI) inflation, UK labour market and Gross Domestic Product (GDP) are all being closely watched. These figures should give new hope to GBP/USD traders, who have been eagerly watching the state of the economy.
Recent labor data out of the United States was enough to spook even the rosiest of economic prospects. Disappointing July American labor figures, alongside a slowdown in the services sector, have reinforced expectations that the Federal Reserve may lower interest rates in September. Such an outcome would likely lead to a substantial appreciation of the GBP/USD exchange rate, as investors would expect an easing of monetary policy.
“This implies one of the most hawkish versions of a 25 bps cut that reasonably could have been expected.” – Goldman Sachs
Given these moves, GBP/USD bulls have their eyes on a major resistance level. They’re working towards the July 24 high of 1.3589. A break above here would be the spark of a bullish fire. This paves the way back towards the round number magnet at the key round number of 1.3700. They now run into stiff resistance at the April 29 peak of 1.3445. They’re hoping to see a weekly close confirm above this level.
Technical Analysis Signals Potential Upside
This daily technical setup for GBP/USD shows strong signs of a bullish momentum reversal. The recent bounce back from multi-month lows is a pretty clear indication that the tide has turned to a more bullish sentiment. Analysts suggest that if buyers can maintain control and break through key resistance levels, a return above the 50-day SMA at 1.3504 could be on the horizon.
If sellers do take back control, solid support can be seen at the 100-day SMA around 1.3360. Should this level of support break, look for renewed selling pressure to set in. Such a move might drive GBP/USD south towards multi-month lows around 1.3141.
The shifting nature of inflation would be another liability to GBP/USD’s direction. With upward price pressures mounting in the wake of continued supply-chain disruptions and bottlenecks, the Consumer Price Index (CPI) is still hovering around multi-decade highs. Such conditions might affect US and UK monetary policy making in the future.
Geopolitical Factors Affecting Currency Movements
Along with the economic news, geopolitical factors are impacting GBP/USD exchange rate. The US president has already threatened retaliatory tariffs on China and Japan because they import oil from Russia. In a time of already tense global trade relations, this move makes things even more complicated. These moves could have further implications for inflationary pressures and overall economic stability.
Traders are getting ready for an exciting week in front. They will be especially looking at the preliminary second-quarter GDP data for the British economy, and the most recent statistics on Industrial Production and Trade. This data is extremely important in assessing the overall health of the UK economy. Additionally, it affects the Pound Sterling’s exchange rate with the US Dollar.