British Pound holds modest gains vs soft USD; lacks bullish conviction

The GBP/USD pair edges higher at the start of a new week, reversing a part of Friday's heavy losses to over a one-week trough. Spot prices, however, lack bullish conviction and trade below mid-1.3500s during the Asian session, warranting caution before confirming that the recent pullback from the highest level since February, touched earlier this month, has run its course.

The US Dollar (USD) pauses after Friday's strong move up to a nearly two-week high amid month-end rebalancing and acts as a tailwind for the GBP/USD pair. The British Pound (GBP), on the other hand, draws support from UK Chancellor John Healey's emphasis on maintaining fiscal discipline as the top priority for Prime Minister Andy Burnhams government ahead of the Autumn Budget on October 28.

Meanwhile, traders have been pushing back expectations for the next Bank of England (BoE) rate hike into 2027 from late 2026. In contrast, US Federal Reserve (Fed) Chair Kevin Warsh's comments on Friday lifted market bets for a rate hike in September. This, along with the risk of a fresh escalation of tensions between the US and Iran, should limit losses for the safe-haven buck and cap the GBP/USD pair.

In the latest developments surrounding the Middle East crisis, US forces have struck two Iranian launchers on Larak Island in Iran. Iran retaliated by launching ballistic missiles from Tehran, Lorestan, Karaj, Khorramabad and Shiraz, and anti-ship cruise missiles from southern Iran toward the Strait of Hormuz. This prompts traders to again price in the geopolitical risk premium and favors USD bulls.

This week's key focus will be on important US macro releases scheduled at the start of a new month, including the US monthly jobs data– popularly known as the Nonfarm Payrolls (NFP) report on Friday. In the meantime, the fundamental backdrop suggests that the path of least resistance for the USD is to the upside and warrants caution before placing bullish bets on the GBP/USD pair.

The GBP/USD pair hovers between clustered Fibonacci supports and nearby moving average resistance, which suggests a neutral near-term bias. The 100-period Simple Moving Average (SMA) on the 4-hour chart, at 1.3559 now caps the upside, with the 23.6% Fibonacci retracement at 1.3579 reinforcing an overhead barrier just above the current consolidation zone.

On the downside, initial support is located at the 38.2% Fibo. retracement at 1.3521, ahead of deeper structural floors at the 50.0% retracement at 1.3474 and the 61.8% level at 1.3427, while the 78.6% retracement at 1.3360 marks a more distant base.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

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 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.