GBP/USD Forecast: Pivot level forms at 1.2750, eyes on US CPI
- GBP/USD stays in a consolidation phase near 1.2750 early Wednesday.
- Annual CPI inflation in the US is forecast to rise to 2.7% in November.
- The near-term technical outlook highlight the pair's indecisiveness.
GBP/USD registered modest gains for the second consecutive day on Tuesday but lost its traction early Wednesday. The pair stays near 1.2750 in the European morning as market focus shifts to the key November inflation report from the US.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.60% | -0.04% | 1.17% | 0.19% | 0.48% | 1.09% | 0.63% | |
| EUR | -0.60% | -0.62% | 0.67% | -0.32% | -0.02% | 0.58% | 0.11% | |
| GBP | 0.04% | 0.62% | 1.12% | 0.31% | 0.60% | 1.21% | 0.74% | |
| JPY | -1.17% | -0.67% | -1.12% | -0.97% | -0.57% | -0.18% | -0.43% | |
| CAD | -0.19% | 0.32% | -0.31% | 0.97% | 0.33% | 0.90% | 0.43% | |
| AUD | -0.48% | 0.02% | -0.60% | 0.57% | -0.33% | 0.59% | 0.13% | |
| NZD | -1.09% | -0.58% | -1.21% | 0.18% | -0.90% | -0.59% | -0.47% | |
| CHF | -0.63% | -0.11% | -0.74% | 0.43% | -0.43% | -0.13% | 0.47% |
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 cautious market mood and rising US Treasury bond yields helped the US Dollar (USD) find demand on Tuesday and made it difficult for GBP/USD to stretch higher. Early Wednesday, the USD stays resilient against its rivals as US stock index futures trade mixed.
The Consumer Price Index (CPI) is forecast to rise 2.7% on a yearly basis in November, up slightly from the 2.6% increase recorded in October. The monthly core CPI, which excludes volatile food and energy prices, is expected to increase 0.3%.
The CME FedWatch Tool currently shows that markets are pricing in a nearly 90% probability of a 25 basis points (bps) Federal Reserve (Fed) rate cut in December. Although inflation figures are unlikely to alter the market pricing of the Fed rate decision in a significant way, a surprise in the monthly core CPI could trigger a reaction in the near term.
In case the monthly core CPI rises 0.5% or more, the USD could gather strength and weigh on GBP/USD. On the other hand, a soft print of 0.2% lower could open the door for a leg higher in the pair.
GBP/USD Technical Analysis
GBP/USD faces a pivot level at 1.2750, where the Fibonacci 50% retracement of the latest downtrend is located. Once that level is confirmed as support, the pair could meet next resistance at 1.2770 (200-period Simple Moving Average (SMA)) before 1.2800 (Fibonacci 61.8% retracement).
Looking south, supports could be spotted at 1.2700 (Fibonacci 38.2% retracement) and 1.2670 (100-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.
