GBP/USD Price Forecast: Bearish outlook remains in play below 1.2450
- GBP/USD posts modest gains near 1.2445 in Thursday’s early European session.
- The pair keeps the negative outlook below the 100-day EMA with the bearish RSI indicator.
- The first downside target emerges at the 1.2400-1.2390 region; the upside barrier is located at 1.2570.
The GBP/USD pair trades with mild gains around 1.2445 during the early European trading hours on Thursday. A modest decline in the Greenback provides some support to the major pair. Investors will closely watch the advance US Gross Domestic Product (GDP) data for the fourth quarter (Q4), which is due later on Thursday. Also, the weekly Initial Jobless Claims and Pending Home Sales will be published.
According to the daily chart, the bearish outlook of GBP/USD remains in place, with the price holding below the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) hovers around the midline, indicating that the consolidation cannot be ruled out.
The initial support level for the major pair emerges in the 1.2400-1.2390 zone, representing the psychological level and the low of January 29. A breach of this level could see a drop to 1.2307, the low of January 22. The additional downside filter to watch is 1.2160, the low of January 20, followed by 1.2125, the lower limit of the Bollinger Band.
On the bright side, the immediate resistance level is located at 1.2570, the upper boundary of the Bollinger Band. Further north, the next hurdle is seen at 1.2645, the 100-day EMA. The next upside barrier to watch is 1.2778, the high of December 10.
GBP/USD daily chart
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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