GBP/USD Forecast: Pound Sterling climbs above key technical levels
- GBP/USD advances to 1.3350 area in the European session on Wednesday.
- The technical outlook suggests that the pair could stretch higher in the near term.
- Several Fed policymakers will be delivering speeches later in the day.
GBP/USD benefited from the broad-based US Dollar (USD) weakness on Tuesday and gained nearly 1% on the day. The pair preserves its bullish momentum and trades at a fresh weekly high near 1.3350 in the European session on Wednesday.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | -0.27% | -0.01% | 0.09% | -1.15% | -0.56% | 0.17% | |
| EUR | -0.11% | -0.26% | 0.44% | 0.46% | -0.64% | -0.18% | 0.54% | |
| GBP | 0.27% | 0.26% | 0.86% | 0.72% | -0.38% | -0.01% | 0.80% | |
| JPY | 0.01% | -0.44% | -0.86% | 0.09% | -1.76% | -1.39% | -0.05% | |
| CAD | -0.09% | -0.46% | -0.72% | -0.09% | -0.97% | -0.64% | 0.08% | |
| AUD | 1.15% | 0.64% | 0.38% | 1.76% | 0.97% | 0.36% | 1.13% | |
| NZD | 0.56% | 0.18% | 0.00% | 1.39% | 0.64% | -0.36% | 0.70% | |
| CHF | -0.17% | -0.54% | -0.80% | 0.05% | -0.08% | -1.13% | -0.70% |
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).
April inflation data from the US weighed on the USD on Tuesday, opening the door for a leg higher in GBP/USD during the American trading hours.
The US Bureau of Labor Statistics reported that annual inflation, as measured by the change in the Consumer Price Index (CPI), edged lower to 2.3% in April from 2.4% in March. In the same period, core CPI inflation held steady at 2.8%, as forecast. On a monthly basis, the CPI and the core CPI both rose by 0.2%, below the market expectation of 0.3%.
Meanwhile, Bank of England (BoE) policymaker Catherine Mann said early Wednesday that the UK labor market has been more resilient than expected and added that increasing inflation expectations are worrying. These comments seem to be supporting Pound Sterling as well.
In the second half of the day, market participants will pay close attention to comments from Federal Reserve (Fed) officials. The CME Group FedWatch Tool shows that markets are currently pricing in a less than 10% probability of a 25 basis points (bps) rate cut in June. In case Fed policymakers acknowledge softer CPI prints and adopt a more optimistic tone on the inflation outlook, the USD could remain under pressure.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rises above 60, pointing to a buildup of bullish momentum. Additionally, GBP/USD closed the last two 4-hour candles above the 50-period and the 100-period Simple Moving Averages (SMA).
On the upside, 1.3400 (static level) aligns as next resistance for GBP/USD ahead of 1.3450 (end-point of the latest uptrend) and 1.3500 (static level, round level). Looking south, supports could be seen at 1.3300 (static level, 100-period SMA), 1.3260 (Fibonacci 23.6% retracement) and 1.3180 (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.
