GBP/USD Forecast: Pound Sterling bulls could retain control on soft US data
- GBP/USD touched 1.2700 for the first time in five weeks.
- The US Dollar could stay under persistent selling pressure if Jobless Claims data disappoint.
- 1.2630 aligns as a key support level for the pair.
Following Wednesday's impressive upsurge, GBP/USD continued to stretch higher and touches its strongest level since April 10 at 1.2700 during the Asian trading hours on Thursday. Although the pair retreats slightly in the European session, buyers could remain interested in case the US data disappoint.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.93% | -1.19% | -0.80% | -0.37% | -1.23% | -1.46% | -0.65% | |
| EUR | 0.93% | -0.30% | 0.10% | 0.55% | -0.34% | -0.55% | 0.26% | |
| GBP | 1.19% | 0.30% | 0.33% | 0.86% | -0.03% | -0.24% | 0.57% | |
| JPY | 0.80% | -0.10% | -0.33% | 0.42% | -0.40% | -0.71% | 0.19% | |
| CAD | 0.37% | -0.55% | -0.86% | -0.42% | -0.84% | -1.11% | -0.37% | |
| AUD | 1.23% | 0.34% | 0.03% | 0.40% | 0.84% | -0.32% | 0.60% | |
| NZD | 1.46% | 0.55% | 0.24% | 0.71% | 1.11% | 0.32% | 0.82% | |
| CHF | 0.65% | -0.26% | -0.57% | -0.19% | 0.37% | -0.60% | -0.82% |
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 US Bureau of Labor Statistics (BLS) reported on Wednesday that the Consumer Price Index (CPI) rose 3.4% on a yearly basis in April. The annual core CPI increased 3.6% in the same period and both of these figures came in line with analysts' estimates. With the immediate reaction, US Treasury bond yields turned south and the US Dollar (USD) came under heavy selling pressure as investors continued to price in a Federal Reserve (Fed) rate cut in September. According to the CME FedWatch Tool, the probability of the Fed leaving the policy rate unchanged in September declined toward 25% from 35% before the inflation data release.
The US Department of Labor will release the weekly Initial Jobless Claims data on Thursday. Last week, the sharp increase seen in the number of first-time applications for unemployment benefits in the US revived concerns over a cooldown in the labor market and caused the USD to weaken against its rivals.
Markets expect Jobless Claims to decline to 220K in the week ending May 11 from 231K. Another reading close to 230K could trigger another leg of a USD selloff and open the door for an extended uptrend in GBP/USD. On the other hand, a noticeable decline toward 200K could help the USD stage a decisive rebound and force the pair to make a deep correction.
GBP/USD Technical Analysis
Immediate resistance for GBP/USD seems to have formed at 1.2700. In case the pair rises above that level and starts using it as support, it could target 1.2760 (Fibonacci 78.6% retracement of the latest downtrend) and 1.2800 (psychological level, static level).
On the downside, the 100-day Simple Moving Average (SMA) aligns as critical support at 1.2630. If GBP/USD fails to hold above that level, buyers could get discouraged. In this scenario, 1.2600 (50-day SMA) and 1.2540 (200-day SMA) could be seen as next support levels.
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.
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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.
