GBP/USD Foreast: Pound Sterling enters consolidation phase ahead of key risk events
- GBP/USD extends its sideways grind above 1.2950 after closing flat on Monday.
- The near-term technical outlook doesn't offer any directional clues.
- Mid-tier data releases from the US will be watched closely ahead of Wednesday's key events.
GBP/USD spent the first trading day of the week moving up and down in a narrow range before closing virtually unchanged. The pair stays in a consolidation phase early Tuesday and continues to fluctuate above 1.2950.
British Pound PRICE Last 7 days
The table below shows the percentage change of British Pound (GBP) against listed major currencies last 7 days. British Pound was the weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.01% | 0.10% | 1.58% | 0.40% | 1.41% | 0.92% | -0.02% | |
| EUR | -0.01% | 0.09% | 1.56% | 0.38% | 1.37% | 0.91% | -0.04% | |
| GBP | -0.10% | -0.09% | 1.47% | 0.30% | 1.29% | 0.81% | -0.13% | |
| JPY | -1.58% | -1.56% | -1.47% | -1.16% | -0.17% | -0.66% | -1.58% | |
| CAD | -0.40% | -0.38% | -0.30% | 1.16% | 1.00% | 0.50% | -0.43% | |
| AUD | -1.41% | -1.37% | -1.29% | 0.17% | -1.00% | -0.48% | -1.42% | |
| NZD | -0.92% | -0.91% | -0.81% | 0.66% | -0.50% | 0.48% | -0.94% | |
| CHF | 0.02% | 0.04% | 0.13% | 1.58% | 0.43% | 1.42% | 0.94% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Although the US Dollar (USD) gathered strength early Monday, GBP/USD managed to limit its losses amid a slight improvement seen in risk mood. Early Tuesday, US stock index futures trade marginally higher on the day, helping the pair hold its ground.
In the second half of the day, JOLTS Job Openings data for September will be featured in the US economic docket. Markets expect the number of job openings to retreat to 7.99 million from 8.04 million in August. A significant positive surprise, with a print of 8.5 million or higher, could lift the USD with the immediate reaction and cause GBP/USD to edge lower. On the flip side, the USD could come under pressure with a print of 7.5 million or lower.
Nevertheless, investors could stay on the sidelines ahead of this week's key risk events, which will include the announcement of the UK Autumn Budget, Gross Domestic Product and Nonfarm Payrolls data releases from the US.
British Prime Minister Keir Starmer said they expect to take the tough decisions in this budget but added they can't guarantee "no tax rises" in future budgets. "We have to move to a situation where we invest in the future of this country," Starmer said and noted that he does not accept the proposition that it will have an impact on interest rates.
GBP/USD Technical Analysis
GBP/USD trades within the descending regression channel coming from late September but the Relative Strength Index (RSI) indicator on the 4-hour chart continues to move sideways near 50, highlighting a lack of directional momentum.
The 100-day Simple Moving Average (SMA) stays intact as a pivot level at 1.2970. In case the pair makes a daily close above this level and confirms it as support, it could attract technical buyers and edge higher toward 1.3010 (upper limit of the descending channel) and 1.3060 (static level).
On the downside, first support could be spotted at 1.2900-1.2890 (round level, mid-point of the descending channel) before 1.2800 (round level, static level).
Pound Sterling FAQs
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 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.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
