The GBP/USD pair is currently trading in positive territory, with a constructive bullish tone above 1.3400, as UK political risk eases. This is a significant development, as the resignation of Keir Starmer in late June has led to a more stable political landscape in the United Kingdom. The formal race to replace outgoing Prime Minister Keir Starmer begins on July 9, with Andy Burnham widely expected to become Prime Minister by July 20. This shift in political leadership has provided some support to the British Pound (GBP) against the US Dollar (USD).
From a technical analysis perspective, the GBP/USD pair holds a mildly bullish near-term bias, with the price sitting above the Bollinger middle band and the 100-day simple moving average (SMA). The pair is pressing the upper half of the recent range, with the Bollinger Bands (20, 2) still widening modestly, while the Relative Strength Index (14) at 57.6 suggests constructive but not overextended upside momentum. On the topside, initial resistance is aligned with the Bollinger upper band at 1.3470, where buyers could hesitate. On the downside, immediate support is provided by the Bollinger middle band near 1.3300, while a deeper pullback would likely be contained by the Bollinger lower band around 1.3130.
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 that 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.
In conclusion, the GBP/USD pair is currently trading in a constructive bullish tone, with the price above 1.3400, as UK political risk eases. This is a significant development, as the resignation of Keir Starmer in late June has led to a more stable political landscape in the United Kingdom. The formal race to replace outgoing Prime Minister Keir Starmer begins on July 9, with Andy Burnham widely expected to become Prime Minister by July 20. This shift in political leadership has provided some support to the British Pound (GBP) against the US Dollar (USD). The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England, which is based on the primary goal of 'price stability' and the adjustment of interest rates.
