GBP/USD Forecast: Pound Sterling closes in on key resistance area
- GBP/USD holds above 1.3550 in the European session on Wednesday.
- The pair clings to a bullish bias in the near term.
- Technical buyers could take action with a break above 1.3590-1.3600.
GBP/USD holds its ground and trades above 1.3550 in the European session on Thursday after posting small gains on Wednesday. In case the pair manages to break above the 1.3590-1.3600 resistance area, it could continue to stretch higher in the near term.
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 | -0.53% | -0.73% | -0.39% | -0.54% | -1.04% | -1.23% | -0.33% | |
| EUR | 0.53% | -0.22% | 0.16% | -0.02% | -0.50% | -0.74% | 0.20% | |
| GBP | 0.73% | 0.22% | 0.41% | 0.20% | -0.29% | -0.52% | 0.41% | |
| JPY | 0.39% | -0.16% | -0.41% | -0.17% | -0.66% | -0.88% | -0.04% | |
| CAD | 0.54% | 0.02% | -0.20% | 0.17% | -0.48% | -0.72% | 0.21% | |
| AUD | 1.04% | 0.50% | 0.29% | 0.66% | 0.48% | -0.17% | 0.79% | |
| NZD | 1.23% | 0.74% | 0.52% | 0.88% | 0.72% | 0.17% | 0.93% | |
| CHF | 0.33% | -0.20% | -0.41% | 0.04% | -0.21% | -0.79% | -0.93% |
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 renewed selling pressure surrounding the US Dollar (USD) helped GBP/USD gain traction on Wednesday.
Ahead of Friday's highly-anticipated Nonfarm Payrolls data, the disappointing private sector employment reading, which showed an increase of 37,000 in May, weighed on the USD on Wednesday. Moreover, the Institute for Supply Management (ISM) reported that the Services Purchasing Managers Index (PMI) fell into the contraction territory at 49.9 in May from 51.6 in April. This reading came in below the market expectation of 52.
In the second half of the day, weekly Initial Jobless Claims data from the US will be watched closely by market participants. Investors expect the number of first-time applications for unemployment benefits to edge lower to 235,000 in the last week of May from 240,000. In case there is a noticeable decline in this data, with a reading below 220,000, the USD could stay resilient against its rivals and limit GBP/USD's upside. Conversely, a disappointing print at or above 240,000 could open the door for another leg higher in the pair.
Investors will also pay attention to the European Central Bank's (ECB) policy announcements. A dovish ECB tone could trigger capital outflows out of the Euro into Pound Sterling. In this scenario, GBP/USD could push higher even if the data releases from the US seem USD-positive at first.
GBP/USD Technical Analysis
GBP/USD trades above the ascending trend line and the Relative Strength Index (RSI) indicator on the 4-hour chart stays near 60, suggesting that the bullish bias remains intact.
On the upside, 1.3590-1.3600 (static level, round level) aligns as the first resistance area. A daily close above this region could attract technical buyers and pave the way for an extended uptrend toward 1.3700 (round level, static level) and 1.3760 (upper limit of the ascending regression channel).
Looking south, support levels could be seen at 1.3540 (mid-point of the ascending channel, ascending trend line), 1.3500 (static level, round level) and 1.3450 (100-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.
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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.
