GBP/USD Forecast: Pound Sterling closes in on key support area
- GBP/USD slumps below 1.3600 in the European session on Monday.
- The technical picture highlights a buildup of bearish momentum.
- The pair could struggle to rebound in case markets remain risk-averse.
After ending the previous week in negative territory, GBP/USD stays under bearish pressure early Monday and trades deep in negative territory below 1.3600. A key support area for the pair seems to have formed at 1.3560-1.3550.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.48% | 0.55% | 0.86% | 0.63% | 1.10% | 1.17% | 0.47% | |
| EUR | -0.48% | 0.08% | 0.12% | 0.12% | 0.67% | 0.67% | -0.02% | |
| GBP | -0.55% | -0.08% | 0.04% | 0.07% | 0.60% | 0.60% | -0.22% | |
| JPY | -0.86% | -0.12% | -0.04% | -0.00% | 0.45% | 0.53% | -0.32% | |
| CAD | -0.63% | -0.12% | -0.07% | 0.00% | 0.48% | 0.54% | -0.29% | |
| AUD | -1.10% | -0.67% | -0.60% | -0.45% | -0.48% | 0.11% | -0.82% | |
| NZD | -1.17% | -0.67% | -0.60% | -0.53% | -0.54% | -0.11% | -0.82% | |
| CHF | -0.47% | 0.02% | 0.22% | 0.32% | 0.29% | 0.82% | 0.82% |
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).
GBP/USD turned south in the second half of the previous week, pressured by the political jitters in the UK and a renewed US Dollar (USD) strength on the upbeat employment data. Early Monday, the negative shift seen in risk mood allows the USD to stay resilient against its peers and makes it difficult for the pair to find a foothold.
Meanwhile, Bank of England policymaker Alan Taylor argued late Friday that it would be better to cut the policy rate now and hold for longer, rather than holding for too long and cutting the rates in a hurry later.
The economic calendar will not offer any high-tier data releases on Monday that could influence GBP/USD's action. Hence, market participants are likely to remain focused on risk perception.
At the time of press, the UK's FTSE 100 Index was trading virtually unchanged on the day, while US stock index futures were losing between 0.3% and 0.7%. In case safe-haven flows continue to dominate the action in financial markets because of the uncertainty surrounding the US trade relations ahead of the July 9 deadline, GBP/USD could continue to stretch lower.
GBP/USD Technical Analysis
GBP/USD dropped below the 100-period Simple Moving Average (SMA) on the 4-hour chart and the Relative Strength Index (RSI) indicator fell to 40, highlighting a bearish tilt in the short-term outlook.
On the downside, 1.3560-1.3550 (200-period SMA, lower limit of the ascending channel, Fibonacci 38.2% retracement level of the latest uptrend) aligns as key support area before 1.3500 (static level, round level) and 1.3470 (Fibonacci 50% retracement).
Looking north, resistance levels could be seen at 1.3600 (100-period SMA), 1.3630 (Fibonacci 23.6% retracement) and 1.3700 (mid-point of the ascending channel, 50-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.
