GBP/USD Forecast: Pound Sterling could correct lower on risk aversion
- GBP/USD retreated below 1.2850 in the early European session on Monday.
- The US Dollar could hold its ground in case safe-haven flows dominate the markets.
- Technical outlook suggests that the bullish bias remains intact.
GBP/USD closed the sixth consecutive trading day in positive territory on Friday and gained more than 1.5% for the week. The pair edges lower early Monday and trades below 1.2850.
The unabated selling pressure surrounding the US Dollar (USD) helped GBP/USD post its largest one-week gain since November.
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 strongest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.94% | -1.40% | -0.54% | -1.27% | -2.32% | -1.07% | -0.85% | |
| EUR | 0.94% | -0.45% | 0.40% | -0.33% | -1.36% | -0.12% | 0.10% | |
| GBP | 1.37% | 0.45% | 0.84% | 0.13% | -0.89% | 0.31% | 0.55% | |
| CAD | 0.54% | -0.41% | -0.84% | -0.72% | -1.78% | -0.54% | -0.30% | |
| AUD | 1.24% | 0.31% | -0.14% | 0.71% | -1.05% | 0.18% | 0.40% | |
| JPY | 2.25% | 1.33% | 0.85% | 1.70% | 1.00% | 1.19% | 1.42% | |
| NZD | 1.06% | 0.13% | -0.32% | 0.53% | -0.19% | -1.23% | 0.23% | |
| CHF | 0.84% | -0.09% | -0.55% | 0.31% | -0.42% | -1.46% | -0.23% |
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).
The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls (NFP) rose by 275,000 in February, surpassing the market consensus of 200,000 by a wide margin. On a negative note, the BLS revised the January NFP increase of 353,000 lower to 229,000. Other details of the jobs report showed that the annual wage inflation, as measured by the changed in the Average Hourly Earnings, edged lower to 4.3% from 4.4% in January and the Unemployment Rate rose to 3.9% from 3.7%, despite the Labor Force Participation holding steady at 62.5%.
According to the CME FedWatch Tool, markets are pricing in a nearly 75% probability that the Federal Reserve (Fed) will lower the policy rate in June.
The US economic docket will not offer any high-impact data releases on Monday. On Tuesday, the UK's Office for National Statistics will release labor market data and the BLS will publish Consumer Price Index (CPI) figures later in the day. Ahead of these data releases, the risk perception could impact GBP/USD's action.
At the time of press, US stock index futures were down between 0.2% and 0.3%, pointing to a cautious opening in Wall Street. Unless the risk mood improves in the American session, the USD could stay resilient against its peers and cause GBP/USD to extend its correction.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart retreated below 70 after climbing above 80 late last week, suggesting that GBP/USD's bullish bias remains intact, with a potential to correct lower in the near term.
On the downside, 1.2840 (upper limit of the ascending regression channel) aligns as immediate support before 1.2790-1.2800 (20-period Simple Moving Average (SMA), psychological level, static level) and 1.2750 (mid-point of the ascending channel).
On the upside, interim resistance seems to have formed at 1.2880 (static level) before 1.2900 (psychological level, static level) and 1.2940 (static level from August 2023).
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.
