The Pound Sterling has demonstrated remarkable strength, breaking above the 50% Fibonacci retracement level, plotted from the late September high to the mid-January low, around 1.2770. The currency's long-term outlook against the US Dollar (GBP/USD) has turned bullish as it climbs above the 200-day Exponential Moving Average (EMA) at approximately 1.2680. In addition, the 14-day Relative Strength Index (RSI) has surpassed the 60.00 mark. This upward momentum comes ahead of Bank of England (BoE) Governor Andrew Bailey's testimony before Parliament's Treasury Committee, underscoring the significance of monetary policy decisions on the Pound Sterling's value.
The Pound Sterling has risen to higher ground near 1.2850 in European trading hours on Wednesday, indicating strong market confidence. This movement is primarily driven by a sustained bullish momentum as the RSI remains above the critical 60.00 level. Should this trend persist, it signals potential for further gains in the currency pair.
Monetary policy, determined by the Bank of England, is the single most influential factor affecting the Pound Sterling's value. The BoE's primary objective is to maintain price stability, targeting a steady inflation rate of around 2%. When inflation exceeds this target, the BoE may raise interest rates to curb spending and borrowing, thereby influencing the currency's strength.
In addition to monetary policy, another crucial data release impacting the Pound Sterling is the Trade Balance. A positive net Trade Balance tends to strengthen a currency, while a negative balance can have the opposite effect. As such, market participants keenly observe these economic indicators to gauge the currency's potential trajectory.
The Pound Sterling holds a significant position in global foreign exchange markets, being the oldest currency in the world since 886 AD and serving as the official currency of the United Kingdom. It ranks as the fourth most traded unit in FX markets, accounting for 12% of all transactions, with an average daily turnover of $630 billion as of 2022.
The GBP/USD pair, also known as 'Cable', is one of the key trading pairs for Pound Sterling, representing 11% of FX transactions. Other notable pairs include GBP/JPY, referred to by traders as 'Dragon', accounting for 3%, and EUR/GBP at 2%.
The recent strength in the Pound Sterling ahead of Governor Bailey's testimony highlights market anticipation of potential policy insights that could influence future currency movements. Traders and investors will closely monitor any remarks regarding inflation rates and interest rate adjustments that could impact the economic outlook.