GBP/USD Price Forecast: Drops on risk-aversion, sellers eye 1.2600

• GBP/USD dips as market reacts to global tensions and hot UK inflation data.
• Technical indicators suggest further downside, with the pair now below the 200-day SMA.
• Key support levels to watch include 1.2600 and May's low at 1.2445, with potential for retesting annual lows.
• Recovery above 1.2665 and the 200-day SMA would be crucial for reversing current bearish momentum.

The Pound Sterling tumbled against the US Dollar early during the North American session as traders digested the escalation of the Russia-Ukraine conflict, the result of the US Presidential Elections, and hot UK inflation data. The GBP/USD trades at 1.2624, down 0.21%.

GBP/USD Price Forecast: Technical outlook

Further downside is seen after the GBP/USD pair dropped underneath the 200-day Simple Moving Average (SMA) at 1.2818. In addition, the major carved out a successive series of lower highs and lower lows, clearing on its way to intermediate support at 1.2665, the August 8 daily low. That and oscillators such as the Relative Strength Index (RSI), which indicate that sellers are in charge, confirm the pair’s bearish bias.

The next support level is seen at 1.2600, followed by the daily low of May 9 at 1.2445, before testing the year-to-date (YTD) low of 1.2299.

If buyers want to regain control, they need the GBP/USD to climb above 1.2665, followed by 1.2700 and the 200-day SMA.

GBP/USD Price Chart – Daily

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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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