British Pound flatlines above 1.3350, UK Retail Sales data in focus
- GBP/USD holds steady near 1.3360 in Friday’s early Asian session.
- BoE left interest rates unchanged at its September meeting on Thursday.
- Fed decided to raise its benchmark interest rate by 25 bps to a range of 3.75% to 4.0% at the September meeting.
The GBP/USD pair trades on a flat note around 1.3360 during the early Asian trading hours on Friday. Traders continue to assess the latest interest rate decisions and policy cues from the US Federal Reserve (Fed) and the Bank of England (BoE). The UK August Retail Sales data will be published later on Friday.
The BoE’s Monetary Policy Committee (MPC) voted 6-3 to hold the Bank Rate at 3.75% on Thursday, despite inflation rising well above its 2% target. However, policymakers warned a hike was becoming increasingly likely. The three dissenters voted to enact a hike of 25 basis points (bps) to 4.0%.
A hike of at least 25 bps is widely anticipated at its next meeting in November, according to LSEG data.
On the other hand, the U.S. Federal Reserve (Fed) announced a quarter-point hike on Wednesday, its first hike since 2023. Fed Chair Kevin Warsh said on Wednesday that “the plain fact is that inflation is too high and has been for too long.” “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” he added.
Traders are now pricing in nearly a 53.1% probability of another US rate hike when the Fed meets next in October, compared with nearly 44% a day ago, according to the CME FedWatch tool.
Pound extends modest recovery as BoE hawkish hold and UK fiscal signals support GBP
Strategists at Scotiabank highlight that the Pound is “seeing marginal strength vs. the USD and extending its modest recovery in the aftermath of the BoE’s hawkish hold.” They add that “yield spreads appear to be offering renewed support to the GBP following their recent pullback, as markets signal additional confidence in the UK’s fiscal outlook in response to the PM Burnham’s budget comments.”
Technical Analysis: GBP/USD remains capped below the key resistance levels
In the daily chart, GBP/USD holds a bearish near-term bias as spot remains below a dense band of volatility and trend indicators. Price is under the 20-day Bollinger simple moving average and capped by the lower band, while the 100-day moving average at 1.3438 adds medium-term overhead pressure. The Relative Strength Index (14) at 31.3 flirts with oversold territory, hinting that downside momentum is stretched but not yet accompanied by a meaningful reclaim of resistance levels.
On the topside, immediate resistance emerges at the Bollinger lower band around 1.3365, followed by the 100-day moving average at 1.3438, which reinforces the broader bearish structure. Further up, the Bollinger middle band at 1.3515 and the upper band near 1.3670 define subsequent hurdles that bulls would need to overcome to neutralize the current downtrend. With no clear support levels from the presented indicators below spot, the pair remains vulnerable to additional selling while it trades beneath this stacked resistance zone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.