GBP/USD Price Forecast: US-Iran reaches deal supports advance beyond 20-day EMA
- GBP/USD jumps to near 1.3460 as the market sentiment turns favorable for riskier assets.
- The finalization of an MoU between the US and Iran has improved the market mood.
- The Fed and BoE are scheduled to announce their monetary policies on Wednesday and Thursday, respectively.
The GBP/USD pair trades 0.35% higher to near 1.3460 during the late Asian trading session on Monday. The Cable extends its week-long advance as market sentiment improves further, following the announcement that the United States (US) and Iran have reached a deal.
At press time, S&P 500 futures are up over 1% and Asian stock markets are exhibiting a broad rally, reflecting a strong risk appetite of investors. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.4% lower at near 99.40.
Pakistan Prime Minister (PM) Shehbaz Sharif has stated in a post on X, formerly known as Twitter, that the finalized memorandum of understanding (MoU) between the US and Iran will be signed on June 19 in Switzerland.
Meanwhile, investors brace for a volatile week, especially for the British Pound (GBP), as an array of United Kingdom (UK) data, including the labor market report for three months ending in April and the Consumer Price Index (CPI) data for May, along with the Bank of England’s (BoE) monetary policy announcement, will be key events to watch out.
In the US, investors will focus on the Federal Reserve’s (Fed) monetary policy, which will be announced on Wednesday.
GBP/USD technical analysis
GBP/USD trades sharply higher at around 1.3460 as of writing. The near-term bias has turned mildly bullish as it returns above the 20-period exponential moving average (EMA), which is at 1.3425.
The Relative Strength Index (RSI) at about 53 hovers just above the midline, hinting at steady, rather than aggressive, upside momentum while the pair consolidates within this supported backdrop.
On the topside, the primary hurdle is the May 26 high at around 1.3500, followed by the descending resistance trend line, with its break price near 1.3580. On the downside, initial demand would be seen around the 20-EMA at 1.3425, while the upward trend-line support around 1.3327 would remain a key support zone.
(The technical analysis of this story was written with the help of an AI tool.)
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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