The Pound Sterling has seen a rise to nearly 1.2600 against the US Dollar at the beginning of the week. Despite this, low volatility is expected for the GBP/USD pair due to thin trading volume conditions in the lead up to New Year celebrations. The US Dollar Index, which tracks the value of the Greenback against six major currencies, has dropped below 108.00 but is on track to end the year with gains of almost 6.7%. While the Federal Reserve reduced key borrowing rates by 100 basis points to 4.25%-4.50% this year, the USD has performed strongly, particularly in the last three months after Donald Trump’s election victory. Trump’s policies, including immigration control, higher tariffs, and lower taxes, are expected to be inflationary and pro-growth.
Technical analysis of the GBP/USD pair shows that it has managed to stay above the 1.2500 mark this week, despite a post-Fed tumble last week that saw the pair drop to its lowest point since May at 1.2474. The medium-term downtrend line is acting as a strong resistance barrier, with additional obstacles in the way for the bulls. Any potential recovery would need to surpass the 61.8% Fibonacci retracement of the November-December upleg at 1.2610, then break through the 20-day simple moving average at 1.2663, and finally conquer the descending trendline.
As the year comes to a close, traders are closely monitoring the movements of the GBP/USD pair in light of the upcoming New Year celebrations. The Pound Sterling’s performance against the US Dollar has been impacted by the low volatility and thin trading volumes, with the US Dollar Index showing gains but dropping below 108.00. Despite the Federal Reserve’s reduction in key borrowing rates this year, the USD has remained strong, particularly following Trump’s election win and the anticipation of inflationary and pro-growth policies.
With the GBP/USD pair holding above 1.2500, traders are cautiously optimistic about the potential for a recovery, but there are significant barriers in place that could impede any significant gains. The medium-term downtrend line is proving to be a strong resistance, and additional obstacles such as the 61.8% Fibonacci retracement and the 20-day simple moving average will need to be overcome for any bullish momentum to be sustained. As the New Year approaches, market participants will be closely watching how the GBP/USD pair performs in the face of low volume conditions and the ongoing strength of the US Dollar.
