GBP/USD Forecast: Pound Sterling closes in on key support area
- GBP/USD trades near 1.2400 in the European session on Monday.
- Technical sellers could take action if 1.2370 support fails.
- Markets continue to pay close attention to developments surrounding the Trump administration's trade policy.
GBP/USD struggles to gain traction and trades in a tight channel at around 1.2400 after posting losses for two consecutive days to end the previous week. In the absence of high-tier data releases, investors will continue to scrutinize fresh developments surrounding US President Donald Trump's trade policy.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.32% | -0.12% | -1.69% | -2.63% | -1.06% | -1.15% | -0.61% | |
| EUR | -0.32% | -0.04% | -0.72% | -1.68% | -0.92% | -0.18% | 0.36% | |
| GBP | 0.12% | 0.04% | -1.78% | -1.64% | -0.88% | -0.14% | 0.40% | |
| JPY | 1.69% | 0.72% | 1.78% | -0.95% | 0.79% | 1.47% | 1.74% | |
| CAD | 2.63% | 1.68% | 1.64% | 0.95% | 0.51% | 1.52% | 2.08% | |
| AUD | 1.06% | 0.92% | 0.88% | -0.79% | -0.51% | 0.75% | 1.29% | |
| NZD | 1.15% | 0.18% | 0.14% | -1.47% | -1.52% | -0.75% | 0.54% | |
| CHF | 0.61% | -0.36% | -0.40% | -1.74% | -2.08% | -1.29% | -0.54% |
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 risk-averse market environment helped the US Dollar (USD) stay resilient against its rivals on Friday and caused GBP/USD to stretch lower, despite the mixed employment data for January.
The Bureau of Labor Statistics (BLS) announced that Nonfarm Payrolls (NFP) rose by 143,000 in January, falling short of analysts' estimate of 170,000. On a positive note, November's NFP increase of 256,000 got revised higher to 307,000, while the Unemployment Rate edged lower to 4.1% from 4% in December.
President Trump said late Friday that he will announce "reciprocal tariffs" on many countries this Tuesday or Wednesday. Over the weekend, he noted that he plans to impose 25% tariffs on all steel and aluminum imports into the US.
The uncertainty surrounding Trump's new tariff threats forces investors to adopt a cautious stance at the beginning of the week, not allowing GBP/USD to stage a rebound. If safe-haven flows dominate the action in the second half of the day, GBP/USD could come under renewed bearish pressure.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 50, reflecting a lack of buyer interest. On the downside, the Fibonacci 38.2% retracement level of the latest downtrend and the ascending trend line form a strong support level at 1.2370. In case GBP/USD falls below this level and starts using it as resistance, technical sellers could take action. In this scenario, 1.2300 (round level, static level) could be seen as next support before 1.2270 (Fibonacci 23.6% retracement).
Looking north, first resistance could be spotted at 1.2450 (Fibonacci 50% retracement) before 1.2500 (round level, static level).
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.
