Sterling is holding steady in the North American session after UK inflation data fell, easing pressure on the Bank of England to deal with higher prices, while attacks between the US and Iran appear to be stopping in the Middle East. The GBP/USD rate is 1.3377.
GBP/USD holds as lower inflation offsets risks for the Middle East
During the European session, inflation data in Great Britain for June dropped from 2.8% to 2.6% y/y. The basic consumer price index (CPI) remained stable at 2.6% y/y over the same period. While this eases the burden on the BoE, investors still price in an 82% chance of a rate hike by the November 5 meeting, according to Prime Terminal data.
The figures came as a relief to novel Prime Minister Andy Burnham, who is trying to implement measures to reduce the high cost of living.
The UK’s novel finance minister, John Healey, said the data was positive but the government would need to do more to support households.
Still, the Gulf War sparked a spike in oil prices, with the U.S. oil benchmark West Texas Intermediate (WTI) rising more than 2.5% to $86.70. So far in July, gas prices are up almost 24%, failing to regain the $90 mark, the WTI low seen in June.
Recently, US President Donald Trump warned Iran that if they attacked ships, the US would retaliate by attacking bridges or power plants, including those located near Tehran.
There is no economic report in the United States, and yet investors are waiting for the release of jobless claims data for the week ending July 18. In addition, investors are also preparing for next week’s flash S&P PMIs and the Federal Reserve’s monetary policy decision.
Money markets priced in a 65% chance the Fed would leave interest rates unchanged at its July 29 meeting, up from 78% a day earlier, according to Prime Terminal data.
GBP/USD Price Forecast: Technical Outlook
On the daily chart, GBP/USD is trading at 1.3375, maintaining a slightly bearish bias in the miniature term as the spot price continues to hold below a cluster of straightforward moving averages (50-, 100- and 200-day SMAs) between around 1.3464 and 1.3472, as well as a descending resistance trendline at 1.3476. The Relative Strength Index (14) of 49.59 is near the midline, indicating a consolidative tone rather than sturdy direction, while the latest FXS Fed Sentiment Index reading of 128.64 suggests a relatively sturdy political backdrop that may continue to constrain sterling on the upside.
On the upper side, initial resistance is at the 50-day SMA at 1.3464, followed by the 100-day SMA at 1.3468 and the 200-day SMA at 1.3472, reinforcing the dense supply zone near the recent trendline barrier at 1.3476; a sustained break above this band would be needed to alleviate bear pressure. With no clear levels of technical support immediately below the market in the current data set, any pullback from current levels would likely lead to a retest of recent lows, leaving the pair vulnerable to further declines as it trades below the aforementioned moving average cluster and trend resistance.
(The technical analysis for this story was written with the support of an AI tool. Find out more.)
Sterling FAQs
The pound sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. As of 2022, it is the fourth most traded currency unit in the world, accounting for 12% of all transactions, with an average value of $630 billion per day. Its key trading pairs are GBP/USD, also known as “The Cable”, which makes up 11% of FX, GBP/JPY or “The Dragon” as traders call it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The most critical factor influencing the value of the pound sterling is the monetary policy pursued by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a constant inflation rate of around 2%. The basic tool to achieve this goal is to adjust interest rates. When inflation gets too high, the BoE will try to contain it by raising interest rates, making access to credit more steep for citizens and businesses. 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 that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to lower borrowing prices so that companies borrow more to invest in projects that generate economic growth.
The published data are used to assess the condition of the economy and may affect the value of the pound sterling. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the GBP exchange rate. A sturdy economy is good for sterling. Not only will it attract more foreign investment, but it may prompt the BoE to raise interest rates, which will directly strengthen the British pound. Otherwise, if economic data is feeble, sterling is likely to fall.
The next critical data release for the pound sterling is the trade balance. This indicator measures the difference between what a country earns from exports and what the country spends on imports over a given period. If a country produces a highly sought after export, its currency will only benefit from the additional demand created by foreign buyers willing to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa in the case of a negative balance.
