GBP/USD Forecast: Pound Sterling clings to bullish stance
- GBP/USD edges higher toward 1.3600 in the European morning on Monday.
- The Fed and the BoE both will announce monetary policy decisions later in the week.
- The technical outlook suggests that the bullish bias remains intact.
After ending the previous week modestly higher, GBP/USD holds its ground and edges higher toward 1.3600 in the European morning on Monday. The near-term technical outlook points to a bullish stance but market participants could refrain from taking large positions ahead of the Federal Reserve's (Fed) and the Bank of England's (BoE) policy meetings later in the week.
The mixed macroeconomic data releases from the US last week made it difficult for the US Dollar (USD) to gather strength against its rivals and helped GBP/USD inch higher.
At the beginning of the week, US stock index futures trade flat, highlighting a cautious market stance. In case market mood continues to sour with a bearish opening in Wall Street, GBP/USD's upside could remain capped.
Later in the session, the New York Fed will publish the Empire State Manufacturing Survey for September. Early Tuesday, the UK's Office for National Statistics (ONS) will release labor market data for July. Investors are likely to pay close attention to wage inflation figures before the ONS publishes consumer inflation data for August on Wednesday. A stronger-than-forecast increase in Average Earnings Excluding Bonus data could support Pound Sterling in the European morning on Tuesday.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds above 60 and GBP/USD continues to pull away from the 20-day Simple Moving Average (SMA) after testing that level last week, reflecting a bullish stance.
On the upside, 1.3590-1.3600 (static level, round level) aligns as the first resistance level ahead of 1.3640 (Fibonacci 78.6% retracement of the latest downtrend) and 13700 (static level, round level). Looking south, support levels could be spotted at 1.3500 (static level, round level, 20-day SMA) and 1.3470-1.3460 (100-day SMA, 50-day SMA, Fibonacci 50% retracement).
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.
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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.
