The British pound (GBP) managed to recover from early losses, stabilizing around 1.3460 against the US dollar (USD) during European trading on Friday. This shift followed the release of January’s retail sales figures in the UK, which sparked interest in the GBP/USD pair.
According to the Office for National Statistics (ONS), retail sales—an essential gauge of how consumers are spending—surprisingly increased by 1.8% month-on-month, up from a modest 0.4% in December. The personal consumption index is believed to have grown at a slower pace of 0.2%. Year-over-year, retail sales rose by 4.5%, surpassing expectations of 2.8% and the previous 1.9% (which was adjusted down from 2.5%).
Looking ahead, investors are anticipating the preliminary S&P World Purchasing Managers Index (PMI) for February, set to be released at 9:30 am Japan time. There’s a sense that the UK currency may experience more volatility, as the composite PMI is expected to dip to 53.4 from January’s 53.7.
On another note, the US dollar (USD) is showing strength as we approach preliminary US gross domestic product (GDP) and S&P Global PMI data scheduled for release at 13:30 pm Japan time. As things currently stand, the U.S. Dollar Index (DXY)—which measures the dollar against six major currencies—is trading solidly near 98.00, moving close to a four-week high that was reached on Thursday.
GBP/USD technical analysis
As of now, the GBP/USD pair remains flat around 1.3460. The 20-day exponential moving average is at 1.3575, which is higher than the current price, indicating a resistance level that hinders any potential rebound and suggests a negative short-term bias. Continuous closes under this average signal that recovery attempts are losing steam. The low of 1.3508 from February 6 will act as immediate resistance.
The 14-day Relative Strength Index (RSI) currently rests at 41, which is bearish. It’s hovering below the midline but hasn’t reached oversold levels, indicating weak momentum.
This environment tends to favor sellers, especially while prices remain beneath the declining average. There’s a risk that any rebound will falter against this dynamic resistance. If the closing price ends up above 1.3575, there could be reduced downside pressure and potential stabilization signals. Otherwise, without this threshold, the path of least resistance appears downward.
(The technical analysis was supported by AI tools.)
(This article was revised on 20 February at 09:46 GMT to clarify that GBP/USD recovered losses in Asian markets following unexpected growth in UK retail sales for January, not February.)
Frequently asked questions about the British pound
The Pound Sterling (GBP) is known as the oldest currency still in use today, dating back to 886 AD, and serves as the official currency of the United Kingdom. In 2022, it ranked fourth globally in terms of foreign exchange (FX) trading volume, making up about 12% of all trades with an average daily volume of $630 billion. Its primary trading pairs include GBP/USD, often referred to as the “cable,” which constitutes 11% of FX trades, along with GBP/JPY (3%), and EUR/GBP (2%). The Bank of England (BoE) is responsible for issuing Sterling.
The value of the pound is heavily influenced by the monetary policy set by the Bank of England. Their decisions revolve around achieving “price stability,” targeting a stable inflation rate of approximately 2%. Interest rate adjustments are the primary tool used for this aim. When inflation climbs too high, the BoE may respond by raising interest rates, making it more expensive to borrow, which generally supports the pound as it attracts foreign investment. Conversely, if inflation dips too low, indicating economic slowdown, the BoE might lower rates to encourage borrowing and investment.
Economic health is reflected through various data releases, and these figures can also affect the pound’s value. Metrics like GDP, manufacturing and services PMI, and employment stats can sway GBP’s direction. A robust economy attracts foreign investment, potentially leading the BoE to raise interest rates, which can strengthen the pound. In contrast, weak economic indicators may weaken the currency.
The British pound’s trade balance is another significant factor. This measures the earnings from exports versus spending on imports over a set time. If a nation produces in-demand goods for export, its currency benefits from increased foreign buyers. Thus, a positive trade balance strengthens the currency, while a negative balance tends to weaken it.
