GBP/USD Forecast: Pound Sterling clings to bullish stance
- GBP/USD trades comfortably above 1.3400 in the European session on Monday.
- The technical picture suggests that the bullish bias remains intact.
- Markets await Fed Chairman Powell's speech on the economic outlook.
GBP/USD registered small losses on Friday but managed to end the second consecutive week in positive territory. The pair holds its ground early Monday and trades above 1.3400.
British Pound PRICE Last 7 days
The table below shows the percentage change of British Pound (GBP) against listed major currencies last 7 days. British Pound was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.30% | -0.63% | -0.98% | -0.34% | -1.73% | -1.94% | -0.82% | |
| EUR | 0.30% | -0.38% | -0.65% | 0.00% | -1.49% | -1.64% | -0.53% | |
| GBP | 0.63% | 0.38% | -0.21% | 0.38% | -1.11% | -1.27% | -0.14% | |
| JPY | 0.98% | 0.65% | 0.21% | 0.66% | -0.84% | -0.97% | 0.05% | |
| CAD | 0.34% | -0.01% | -0.38% | -0.66% | -1.34% | -1.62% | -0.50% | |
| AUD | 1.73% | 1.49% | 1.11% | 0.84% | 1.34% | -0.14% | 0.98% | |
| NZD | 1.94% | 1.64% | 1.27% | 0.97% | 1.62% | 0.14% | 1.14% | |
| CHF | 0.82% | 0.53% | 0.14% | -0.05% | 0.50% | -0.98% | -1.14% |
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 selling pressure surrounding the US Dollar (USD) at the beginning of the new week helps GBP/USD stretch higher. The data published by the US Bureau of Economic Analysis showed on Friday that the core Personal Consumption Expenditures (PCE) Price Index rose 0.1% on a monthly basis in August, at a softer pace than the market expectation of 0.2%.
Meanwhile, the UK's Office for National Statistics announced earlier in the day that it revised down the annualized Gross Domestic Product (GDP) growth for the second quarter to 0.7% from the 0.9% reported in the advanced estimate. This data, however, failed to trigger a noticeable market reaction.
Later in the American session, Federal Reserve (Fed) Chairman Jerome Powell will speak on the economic outlook at the National Association for Business Economics Annual Meeting, starting at 17:00 GMT. Fed Governor Michelle Bowman is also scheduled to deliver a speech in the early American session.
The CME FedWatch Tool shows that markets are seeing a nearly 50% probability of the Fed lowering the policy rate by 25 basis points (bps) at the next policy meeting in early November. The market positioning suggests that the US Dollar (USD) faces a two-way risk. In case Powell leaves the door open for another large rate cut, the USD could continue to weaken against its major rivals. On the other hand, GBP/USD could lose its traction if he signals that they will adopt a gradual approach to further policy easing.
GBP/USD Technical Analysis
GBP/USD remains within the ascending regression channel coming from September 12 and the Relative Strength Index (RSI) indicator on the 4-hour chart stays near 60, reflecting the bullish bias.
On the upside, 1.3440 (mid-point of the ascending channel) aligns as next resistance before 1.3500 (round level) and 1.3520 (upper limit of the ascending channel). Looking south, supports could be spotted at 1.3375 (lower limit of the ascending channel), 1.3330 (50-period Simple Moving Average) and 1.3300 (round level).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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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.
