GBP/USD Forecast: Pound Sterling could correct higher on improving risk mood
- GBP/USD recovers toward 1.2500 after touching a new five-month low on Friday.
- The pair could extend its rebound in case risk mood continues to improve.
- Investors keep a close eye on headlines surrounding the Israel-Iran conflict.
GBP/USD rebounds early Monday and advances above 1.2450 after slumping to its lowest level since November at 1.2426 ahead of the weekend. The technical outlook suggests that the bearish bias remains intact but a de-escalation of geopolitical tensions could help the pair extend its recovery.
Investors sought refuge ahead of the weekend on reports of Iran preparing an attack on Israel in retaliation to the suspected Israeli attack on Iran’s consulate in Damascus on April 1. In turn, the US Dollar capitalized on safe-haven flows, triggering a sharp decline in GBP/USD in the late American session.
Pound Sterling price in the last 7 days
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies in the last 7 days. Pound Sterling was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.59% | 1.15% | 0.98% | 1.35% | 1.40% | 1.10% | 1.03% | |
| EUR | -1.62% | -0.46% | -0.62% | -0.23% | -0.19% | -0.47% | -0.57% | |
| GBP | -1.16% | 0.46% | -0.16% | 0.21% | 0.26% | -0.05% | -0.12% | |
| CAD | -1.00% | 0.61% | 0.15% | 0.39% | 0.42% | 0.12% | 0.07% | |
| AUD | -1.37% | 0.23% | -0.23% | -0.39% | 0.04% | -0.24% | -0.34% | |
| JPY | -1.43% | 0.19% | -0.25% | -0.43% | -0.04% | -0.28% | -0.37% | |
| NZD | -1.11% | 0.49% | 0.05% | -0.13% | 0.26% | 0.31% | -0.08% | |
| CHF | -1.05% | 0.56% | 0.11% | -0.06% | 0.33% | 0.37% | 0.06% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Over the weekend, Iran launched an attack with drones, cruise missiles and ballistic missiles. Israeli military spokesman Rear Admiral Daniel Hagari said in a televised statement that only a small number of ballistic missiles reached Israel.
US President Joe Biden has reportedly told Israeli Prime Minister Benjamin Netanyahu that the US would not participate in any Israeli counter-offensive against Iran. Meanwhile, German Foreign Minister Annalena Baerbock said that Israel now should secure the 'defensive victory' and added that a further escalation of the conflict in the region should be prevented.
US stock index futures were last seen rising between 0.4% and 0.6% on the day. In case Wall Street's main indexes open in the positive territory and continue to push higher, the USD could have a hard time preserving its strength and allow GBP/USD to edge higher.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rose above 30, suggesting that GBP/USD is staging a technical correction, while remaining bearish in the near term.
On the upside, 1.2500 (psychological level, static level) aligns as first resistance before 1.2560 (static level) and 1.2580 (200-day Simple Moving Average).
Static support seems to have formed at 1.2450 ahead of 1.2400 (static level, psychological 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.
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.
