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The GBP/USD currency pair remained on a downward trajectory on Wednesday, but volatility in the British pound is also decreasing. It is worth noting that, historically, the pound has been more volatile than the euro. Therefore, we observe somewhat more interesting movements in the GBP/USD pair than in the EUR/USD pair. However, in recent days, the British pound has not been promising on either trend or volatility.
The current week began last Friday when the U.S. Supreme Court annulled all of Donald Trump's global tariffs, and Trump immediately reinstated them through other laws. Additionally, the bellicose rhetoric from the U.S. President towards Iran is escalating. We would even advise traders not to focus on Trump's words (everyone knows that the American leader's opinion can change five times in one day), but rather on concrete actions. Military ships continue to arrive in the Persian Gulf, and there are about 50 bombers ready to strike Iran. In our view, this could be a demonstration of strength, but why would the U.S. need to demonstrate its military potential to anyone in the world? All countries are well aware of it. Iran could have realized the seriousness of Trump's intentions and his readiness to use force last summer.
Therefore, we believe that a deal between Washington and Tehran is unlikely. Today, a potentially final round of negotiations between Iran and the U.S. is set to take place in Geneva. If it does not yield any progress, a strike against Iran may occur in the near future. We consider this one of the few reasons for the U.S. dollar's possible strengthening in recent weeks.
Despite the fact that the dollar has been actively losing its status as the world's reserve currency in recent years, this process is not quick. For instance, the dollar's share of reserves among the world's central banks has decreased to its lowest level in the past 20 years. What does this indicate? That central banks around the world are moving away from the American currency in favor of other currencies. But what is the current level of these reserves? About 57%. Thus, 57% of the foreign exchange reserves of all central banks worldwide are still in dollars. Therefore, while the dollar is losing its status as a "safe haven," it will still retain that status for a long time. This may explain the recent surge in the dollar, despite the extremely contradictory set of macroeconomic data in the U.S.
Even if this is indeed the case, the dollar has likely already priced in this growth factor. As such, we continue to expect further growth in the GBP/USD pair. Unfortunately, the British pound is putting obstacles in its own way lately. Inflation is decreasing in the UK, the economy is growing at negligible rates, and unemployment is rising. It seems that the Bank of England will be forced to resume easing monetary policy at the next meeting. Of course, this factor cannot support the British currency. However, the global upward trend, which has lifted the British pound from $1.04 to $1.35, remains intact. Therefore, we view any decline in the currency pair as a correction.
The average volatility of the GBP/USD pair over the last 5 trading days is 76 pips. For the pound/dollar pair, this value is considered "average." On Thursday, February 26, we expect the pair to trade within a range between 1.3481 and 1.3633. The upper channel of the linear regression is directed upwards, indicating a trend recovery. The CCI indicator has entered oversold territory, signaling a potential end to the correction.
The GBP/USD currency pair is on track to continue its 2025 upward trend, and its long-term outlook remains unchanged. Donald Trump's policies will continue to exert pressure on the U.S. economy; therefore, we do not expect the American currency to grow in 2026. Even its status as a "reserve currency" no longer holds significance for traders. Thus, long positions with targets of 1.3916 and above remain relevant for the near term as long as the price stays above the moving average. If the price is positioned below the moving average line, small shorts may be considered with targets at 1.3428 and 1.3306 on a technical (corrective) basis. From time to time, the American currency exhibits corrections (in a global sense), but for trend growth, it requires global positive factors.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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