GBP/USD Forecast: Pound Sterling could clear 1.2700 on weak US data
- GBP/USD trades marginally higher near 1.2700 on Wednesday.
- The technical outlook highlights a bullish tilt in the near term.
- The USD could stay on the back foot if the US data disappoint.
GBP/USD continues to edge higher and trades in positive territory near 1.2700 after posting gains on Tuesday. The pair's technical outlook points to a bullish tilt in the near term as investors await key macroeconomic data releases from the US.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.42% | -0.42% | 0.68% | 0.00% | -0.02% | 0.24% | 0.62% | |
| EUR | 0.42% | -0.19% | 0.80% | 0.14% | 0.18% | 0.37% | 0.77% | |
| GBP | 0.42% | 0.19% | 0.99% | 0.34% | 0.39% | 0.56% | 0.95% | |
| JPY | -0.68% | -0.80% | -0.99% | -0.67% | -0.69% | -0.31% | -0.19% | |
| CAD | -0.00% | -0.14% | -0.34% | 0.67% | -0.03% | 0.23% | 0.62% | |
| AUD | 0.02% | -0.18% | -0.39% | 0.69% | 0.03% | 0.19% | 0.66% | |
| NZD | -0.24% | -0.37% | -0.56% | 0.31% | -0.23% | -0.19% | 0.41% | |
| CHF | -0.62% | -0.77% | -0.95% | 0.19% | -0.62% | -0.66% | -0.41% |
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 US Dollar (USD) came under modest selling pressure as the market mood improved during the American trading hours on Federal Reserve Chairman Jerome Powell's comments on the policy outlook on Tuesday.
Speaking at the ECB Forum on Central Banking, Powell acknowledged that the disinflation trend was showing signs of resuming. Although he reiterated that they need to be more confident before reducing the policy rate, he added that an unexpected weakness in the labor market could cause them to react.
Later in the session, ADP Employment Change from the US will be watched closely by market participants. The report is expected to show an increase of 160,000 in private sector payrolls. A significant negative surprise, with a reading below 130,000, could put additional weight on the USD's shoulders.
The US economic calendar will also feature the ISM Services PMI for June. In case the headline PMI holds comfortably above 50, the USD could stay resilient against its rivals and limit GBP/USD upside. On the flip side, a print below 50 could further weigh on the USD.
On Thursday, US markets will remain closed in observance of the July 4 holiday and the UK general election will take place.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart climbed above 60, reflecting a buildup of bullish momentum. Additionally, the last 4-hour candle close above the 100-period Simple Moving Average.
On the upside, the 20-day Simple Moving Average (SMA) and the 200-period SMA on the 4-hour chart form stiff resistance near 1.2700. In case GBP/USD rises above this level and starts using it as support, technical buyers could remain interested. In this scenario, 1.2750 (static level) and 1.2800 (static level, psychological level) could be seen as next resistance levels.
If GBP/USD fails to clear 1.2700, it could stage a technical correction. The 100-day SMA aligns as key support at 1.2640 before 1.2600 (psychological 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, aka ‘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.
