GBP/USD Forecast: Bearish pressure builds up as key support fails
- GBP/USD trades in negative territory below 1.3500 after posting losses on Thursday.
- The technical outlook highlights a buildup of bearish momentum in the short term.
- Retail Sales in the UK rose at a softer pace than expected in June.
GBP/USD came under bearish pressure on Thursday and lost more than 0.5%, snapping a three-day winning streak in the process. The pair extends its slide on Friday and trades below 1.3500.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.01% | 0.36% | 0.47% | 0.30% | 0.44% | 0.31% | 0.07% | |
| EUR | -0.01% | 0.39% | 0.47% | 0.31% | 0.33% | 0.30% | 0.04% | |
| GBP | -0.36% | -0.39% | 0.10% | -0.10% | -0.06% | -0.07% | -0.33% | |
| JPY | -0.47% | -0.47% | -0.10% | -0.19% | -0.10% | -0.17% | -0.41% | |
| CAD | -0.30% | -0.31% | 0.10% | 0.19% | 0.18% | 0.01% | -0.26% | |
| AUD | -0.44% | -0.33% | 0.06% | 0.10% | -0.18% | -0.03% | -0.25% | |
| NZD | -0.31% | -0.30% | 0.07% | 0.17% | -0.01% | 0.03% | -0.24% | |
| CHF | -0.07% | -0.04% | 0.33% | 0.41% | 0.26% | 0.25% | 0.24% |
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).
The renewed US Dollar (USD) strength weighed on GBP/USD on Thursday. The US Department of Labor reported that the number of first-time applications for unemployment benefits declined to 217,000 in the week ending July 19 from 221,000 in the previous week. This reading came in better than the market expectation of 227,000. Additionally, the S&P Global Composite Purchasing Managers Index (PMI) improved to 54.6 (preliminary) in July from 52.9 in June, reflecting an ongoing expansion in the private sector's business activity, at an accelerating pace.
Meanwhile, the EUR/GBP cross rose more than 0.3% on Thursday as the Euro benefited from the European Central Bank's (ECB) cautious tone on policy-easing. EUR/GBP preserves its bullish momentum and trades at its highest level since early April above 0.8700 on Friday, suggesting that the Euro continues to capture capital outflows out of Pound Sterling.
Early Friday, the UK's Office for National Statistics reported that Retail Sales rose by 0.9% on a monthly basis in June. This reading followed the 2.8% decrease recorded in May but came in worse than the market expectation for an increase of 1.2%, making it difficult for GBP/USD to stage a rebound.
In the second half of the day, Durable Goods Orders data for June will be the only data featured in the US economic calendar. Nevertheless, this data is unlikely to have a long-lasting impact on the USD's valuation.
GBP/USD Technical Analysis
GBP/USD broke below the 100-period and the 200-period Simple Moving Averages (SMAs) on the 4-hour chart and the Relative Strength Index (RSI) indicator dropped below 40, pointing to a bearish tilt in the near term.
In case GBP/USD confirms 1.3470 (Fibonacci 50% retracement of the latest uptrend) as resistance, 1.3400 (Fibonacci 61.8% retracement) could be seen as the next support level before 1.3340. On the upside, resistance levels could be spotted at 1.3520 (100-period SMA) and 1.3540-1.3550 (Fibonacci 38.2% retracement, 200-period SMA).
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.
