Key Moments
- GBP/USD trades near 1.3635 in early European dealings, rebounding after a two-day decline.
- UK Q4 GDP is projected to rise 0.2% QoQ, with a stronger print seen as supportive for GBP against the USD.
- Price holds above the 100-day EMA at 1.3447, with initial support at 1.3618 and resistance at 1.3713.
GBP/USD Firms Ahead of UK GDP Data
GBP/USD is consolidating gains around 1.3635 during early trading in Europe on Thursday, recovering after two consecutive sessions of losses. Market participants are focused on the advance reading of the United Kingdom’s fourth-quarter Gross Domestic Product (GDP), scheduled for release later on Thursday.
Consensus expectations are for the UK economy to expand by 0.2% quarter-on-quarter in Q4, compared with a 0.1% increase in Q1. A result that exceeds these projections has the potential to provide further support for the Pound against the US Dollar.
US Data and Fed Expectations Temper Upside
On the US side, the outlook for near-term monetary policy has shifted following stronger labor market data. After the latest US Nonfarm Payrolls (NFP) report, traders reduced expectations for an interest rate cut by the Federal Reserve in March, a development that may limit additional upside for GBP/USD.
According to the Bureau of Labor Statistics, NFP rose by 130,000 in January, surpassing forecasts of 70,000. The Unemployment Rate declined to 4.3% in January from 4.4% in December, coming in below the anticipated 4.4% reading.
Technical Outlook: Bullish Bias Above 100-Day EMA
From a technical perspective, the daily chart shows GBP/USD trading above the ascending 100-day Exponential Moving Average (EMA) at 1.3447, preserving a constructive bias. The ongoing upward slope of this average continues to attract buying interest on pullbacks.
The Relative Strength Index (RSI) stands at 53.6, has turned higher, and remains above the 50 level, indicating improving positive momentum. The middle line of the Bollinger Bands, located at 1.3618, is acting as a near-term support area for the latest retracement, while the February 11 high at 1.3713 is serving as the immediate resistance zone. A further technical level on the upside is the upper Bollinger Band at 1.3873.
Bollinger Bands have widened, and spot prices are hovering just above the midline, a configuration that points to building upside pressure alongside increasing volatility. If buyers retain control, price could extend toward the upper band. Conversely, a daily close below the lower band would weaken the prevailing structure and open the door to additional losses.
| Level / Indicator | Value | Implication |
|---|---|---|
| Current price area | 1.3635 | Recovery after two-day decline |
| Initial support (Bollinger midline) | 1.3618 | Key near-term floor |
| First resistance (February 11 high) | 1.3713 | Caps short-term advances |
| 100-day EMA | 1.3447 | Maintains broader bullish bias |
| Upper Bollinger Band | 1.3873 | Next upside technical target |
| RSI (daily) | 53.6 | Momentum turning more constructive |
(The technical analysis of this story was written with the help of an AI tool.)
Background on the Pound Sterling
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).
Bank of England Policy and Its Effect on GBP
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.
Role of Economic Data in Driving GBP
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.
Trade Balance and Its Impact on 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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