The GBP/USD currency pairs, popularly known as ‘Cable’ is struggling to find a further recovery. Recent economic developments have only increased the storminess of this trip. The Pound Sterling is increasingly interesting. This surge comes on the heels of the UK Budget announcement, which alleviated concerns over fiscal responsibility and strengthened the GBP/USD. GBP/USD alone constitutes around 11% of all global foreign exchange transactions. This reality only magnifies its relevance in the global economy.
Currently, the 20-day Simple Moving Average (SMA) for GBP/USD is located at 1.3142 acting as an important support. On the flip side, the 200-day SMA, currently located at 1.3313, acts as a moving resistance barrier. The current market conditions reveal a complex interplay of factors influencing the currency pair’s trajectory, with analysts closely monitoring various technical indicators and economic signals.
Economic Factors Influencing GBP/USD
The recent UK Budget announcement has provided an important support for the Pound Sterling. By mitigating fiscal pressures, the government has created a more conducive environment for GBP/USD to begin a recovery. This upbeat mood is evidenced by the UK economy’s strong performance against the US dollar.
Along with this run of fiscal changes, dovish commentary from Federal Reserve officials has likely contributed to this dynamic. Notably, San Francisco Fed President Mary Daly stated, “the Fed shouldn’t hold off on cutting rates now out of fear it may need to reverse course later.” This perspective aligns with the views of New York Fed President John Williams, who remarked that “US interest rates could fall without putting the Fed’s inflation goal at risk, while helping guard against a slide in the job market.” These comments have fueled speculation over earlier than expected rate cuts which would weigh on GBP/USD.
Yet, as much as short-term momentum is improving, analysts are warning that the bias for GBP/USD is still lopsided. Meanwhile, the Relative Strength Index (RSI) now sits at 53, showing neutral position and pointing to some near-term momentum reversal. Its ability to hold above the 50 mark would be key to improving chances of an upside extension for the currency pair.
Technical Indicators at a Glance
The market participants continue worrying about key technical indicators that may signal reversal of GBP/USD’s trajectory. With the 50- and 100-day SMAs both trending lower, increased hurdles remain for a lasting recovery. The 38.2% of the last leg down is at 1.3264. It counts the decline from the July peak at 1.3675 down to the recent low at 1.3011 and is currently acting as near-term resistance.
The 50% retracement level is visible at 1.3343. How these levels interact with one another will be even more important for traders, as they look to gauge where the next best possible entry lies. In case of a pullback in GBP/USD, the ascending 20-day SMA will be the first line of defense for buyers.
“The odds of an upside extension for GBP/USD increase if RSI holds above 50.” – Market Analyst
Global Events Impacting GBP/USD
Looking beyond the trade picture, international events matter a lot in driving GBP/USD as well. Ongoing discussions regarding a potential peace deal between the US and Ukraine could influence market sentiment and risk appetite among investors. We’ll be watching carefully for remarks from policymakers at the Bank of England (BoE). Coupled with these unique insights, we’ll learn how the future of monetary policy will take shape.
As global investors seek attractive opportunities, higher interest rates in the UK may draw increased capital inflows, positively impacting GBP/USD. Ongoing IO and US macroeconomic woes still cast a shadow of uncertainty in the market.