GBP/USD Forecast: Pound Sterling could correct lower if sellers defend 1.3000
- GBP/USD trades at its highest level since mid-July above 1.3000.
- The short-term technical picture shows that the pair remains overbought.
- GBP/USD could correct lower in case it fails to stabilize above 1.3000.
GBP/USD closed the third consecutive trading day in positive territory on Monday and continued to stretch higher early Tuesday, reaching its highest level since mid-July above 1.3000. The near-term technical outlook shows that the pair remains overbought in the near term.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.55% | -0.49% | -0.98% | -0.47% | -0.86% | -1.48% | -0.69% | |
| EUR | 0.55% | -0.02% | -0.37% | 0.08% | -0.40% | -1.10% | -0.20% | |
| GBP | 0.49% | 0.02% | -0.53% | 0.06% | -0.40% | -1.02% | -0.18% | |
| JPY | 0.98% | 0.37% | 0.53% | 0.43% | 0.06% | -0.41% | 0.10% | |
| CAD | 0.47% | -0.08% | -0.06% | -0.43% | -0.42% | -0.93% | -0.29% | |
| AUD | 0.86% | 0.40% | 0.40% | -0.06% | 0.42% | -0.54% | 0.21% | |
| NZD | 1.48% | 1.10% | 1.02% | 0.41% | 0.93% | 0.54% | 0.78% | |
| CHF | 0.69% | 0.20% | 0.18% | -0.10% | 0.29% | -0.21% | -0.78% |
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 improving risk mood made it difficult for the US Dollar (USD) to find demand on Monday and allowed GBP/USD to build on the previous week's gains.
Early Tuesday, US stock index futures trade marginally higher on the day. In the absence of high-tier macroeconomic data releases that could impact the USD's valuation, the risk perception could continue to drive GBP/USD's action. A bullish opening in Wall Street, followed by another leg higher in major equity indexes, could help the pair hold its ground in the second half of the day.
Later in the American session, Atlanta Federal Reserve (Fed) President Raphael Bostic and Fed Vice Chair for Supervision Michael Barr will be delivering speeches. They are, however, unlikely to comment on the policy outlook. On Wednesday, the Fed will release the minutes of the July 30-31 monetary policy meeting.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 80, suggesting that GBP/USD is yet to correct the overbought conditions.
In case GBP/USD retreats below 1.3000 and starts using this level as resistance, 1.2950 (Fibonacci 78.6% retracement of the latest downtrend) could be seen as next support before 1.2900 (Fibonacci 61.8% retracement, psychological level).
On the upside, 1.3045 (beginning point of the downtrend, July 17 high) aligns as next resistance before 1.3100 (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.
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.
