GBP/USD Forecast: Pound Sterling approaches key resistance
- GBP/USD trades at its highest level in nearly a year at around 1.2950.
- The technical outlook shows the pair remains overbought in the near term.
- GBP/USD could stage a technical correction if it fails to clear 1.2970.
After closing the day decisively higher on Thursday, GBP/USD continued to edge higher and touched its strongest level in nearly a year, a few pips above 1.2950. The near-term technical outlook shows that the pair remains overbought.
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 | -0.45% | -1.08% | -0.94% | -0.20% | -0.34% | 0.49% | -0.02% | |
| EUR | 0.45% | -0.43% | -0.16% | 0.57% | 0.27% | 1.28% | 0.77% | |
| GBP | 1.08% | 0.43% | 0.23% | 1.03% | 0.71% | 1.72% | 1.20% | |
| JPY | 0.94% | 0.16% | -0.23% | 0.74% | 0.62% | 1.60% | 0.97% | |
| CAD | 0.20% | -0.57% | -1.03% | -0.74% | -0.18% | 0.69% | 0.20% | |
| AUD | 0.34% | -0.27% | -0.71% | -0.62% | 0.18% | 1.01% | 0.49% | |
| NZD | -0.49% | -1.28% | -1.72% | -1.60% | -0.69% | -1.01% | -0.51% | |
| CHF | 0.02% | -0.77% | -1.20% | -0.97% | -0.20% | -0.49% | 0.51% |
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 broad-based selling pressure surrounding the US Dollar (USD) fuelled GBP/USD's rally during the American trading hours on Thursday. The US Bureau of Labor Statistics (BLS) reported that annual inflation in the US, as measured by the change in the Consumer Price Index (CPI), softened to 3% on a yearly basis in June from 3.3% in May. This reading came in below the market expectation of 3.1%. Additionally, the CPI declined 0.1% on a monthly basis.
The probability of the Federal Reserve (Fed) leaving the policy rate unchanged in September dropped below 10% following the inflation data, causing the USD to weaken against its major rivals.
The USD struggles to find a foothold and allows GBP/USD to stretch higher ahead of producer inflation data for June. On a monthly basis, the Producer Price Index is expected to increase 0.1% following the 0.2% decrease recorded in May. A negative reading could force USD to stay on the back foot heading into the weekend, while a positive surprise could limit the pair's upside.
Even if the PPI data initially weighs on the USD, investors could also look to book profits ahead of the weekend, triggering a short-lasting decline in GBP/USD.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 80, reflecting overbought conditions. The upper limit of the ascending regression channel coming from late April forms key resistance at 1.2970 before 1.3000 (psychological level, static level) and 1.3040 (static level from July 2023).
On the downside, first support is located at 1.2900 (psychological level, static level) ahead of 1.2850-1.2860 (static level, June 12 high) and 1.2820 (mid-point of the ascending channel).
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, aka ‘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.
