GBP/USD Forecast: Pound Sterling could attract technical buyers if it clears 1.2700
- GBP/USD edges higher toward 1.2700 in the European morning on Wednesday.
- ADP Employment Change and ISM Services PMI data from the US will be watched closely.
- Fed Chairman Powell will be delivering a speech in the American session.
Following Monday's sharp decline, GBP/USD recovered modestly on Tuesday. The pair continues to edge higher toward 1.2700 in the early European session on Wednesday.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.60% | 0.43% | 0.38% | 0.53% | 1.12% | 1.08% | 0.65% | |
| EUR | -0.60% | -0.21% | -0.22% | -0.06% | 0.60% | 0.48% | 0.08% | |
| GBP | -0.43% | 0.21% | -0.02% | 0.15% | 0.83% | 0.70% | 0.27% | |
| JPY | -0.38% | 0.22% | 0.02% | 0.15% | 0.77% | 0.72% | 0.22% | |
| CAD | -0.53% | 0.06% | -0.15% | -0.15% | 0.75% | 0.55% | 0.12% | |
| AUD | -1.12% | -0.60% | -0.83% | -0.77% | -0.75% | -0.13% | -0.53% | |
| NZD | -1.08% | -0.48% | -0.70% | -0.72% | -0.55% | 0.13% | -0.40% | |
| CHF | -0.65% | -0.08% | -0.27% | -0.22% | -0.12% | 0.53% | 0.40% |
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 data from the US showed on Tuesday that JOLTS Job Openings for October rose to 7.74 million from 7.37 million in September. This reading came in above the market expectation of 7.48 million and helped the US Dollar (USD) stay resilient against its rivals, limiting GBP/USD's upside.
Bank of England Governor Andrew Bailey will speak at the Financial Times Live Global Boardroom at 09:00 GMT on Wednesday. Later in the day, ADP Employment Change and ISM Services PMI data for November will be featured in the US economic docket.
Investors expect the private sector employment to rise by 150,000. A positive surprise, with a reading at or above 200,000, could boost the USD with the immediate reaction. On the other hand, a print below 100,000 could revive concerns over worsening conditions in the labor market and hurt the USD.
In the American session, Federal Reserve Chairman Jerome Powell will participate in a moderated discussion at the New York Times DealBook Summit, starting at 18:45 GMT. The CME FedWatch Tool shows that markets are currently pricing in a nearly 75% probability of a 25 basis points (bps) rate cut in December. In case Powell leaves the door open for a policy hold, the USD could gather strength against its rivals and force GBP/USD to turn south.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds slightly above 50 and GBP/USD managed to hold above the 100-period Simple Moving Average (SMA) after testing this level several times since Tuesday, highlighting sellers' hesitancy.
Looking north, resistances could be spotted at 1.2700 (Fibonacci 38.2% retracement of the latest downtrend), 1.2750 (Fibonacci 50% retracement) and 1.2810-1.2800 (Fibonacci 61.8% retracement, 200-period SMA). On the downside, immediate support is located at 1.2650 (100-period SMA) before 1.2630-1.2620 (50-period SMA, Fibonacci 23.6% retracement) and 1.2600 (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.
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.
