GBP/USD Forecast: Pound Sterling could extend correction unless risk mood improves
- GBP/USD trades in negative territory below 1.3500 on Friday.
- The cautious market mood could make it difficult for Pound Sterling to gather strength.
- The US economic calendar will offer PCE inflation data for July.
GBP/USD loses its traction and trades in negative territory below 1.3500 after closing the previous three days higher. The pair's near-term technical outlook points to a loss of bullish momentum.
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | 0.22% | 0.03% | -0.06% | -0.13% | -0.23% | -0.18% | |
| EUR | 0.04% | 0.25% | 0.07% | -0.01% | -0.05% | -0.19% | -0.15% | |
| GBP | -0.22% | -0.25% | -0.24% | -0.27% | -0.31% | -0.39% | -0.41% | |
| JPY | -0.03% | -0.07% | 0.24% | -0.02% | -0.18% | -0.23% | -0.13% | |
| CAD | 0.06% | 0.01% | 0.27% | 0.02% | -0.10% | -0.15% | -0.14% | |
| AUD | 0.13% | 0.05% | 0.31% | 0.18% | 0.10% | -0.13% | -0.11% | |
| NZD | 0.23% | 0.19% | 0.39% | 0.23% | 0.15% | 0.13% | 0.04% | |
| CHF | 0.18% | 0.15% | 0.41% | 0.13% | 0.14% | 0.11% | -0.04% |
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).
GBP/USD edged higher on Thursday but erased a portion of its daily gains in the American session as the upbeat macroeconomic data releases helped the US Dollar (USD) find a foothold.
The US Bureau of Economic Analysis (BEA) revised the annualized Gross Domestic Product (GDP) growth for the second quarter to 3.3%, against the initial estimate and market expectation of 3% and 3.1%, respectively. Other data from the US showed that weekly Initial Jobless Claims declined to 229,000 from 234,000 in the previous week. This print came in slightly better than the market expectation of 230,000.
In the second half of the day, the BEA will release the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's (Fed) preferred gauge of inflation, for July.
The headline annual PCE inflation is seen holding steady at 2.6%. The core PCE inflation, which excludes volatile food and energy prices, is forecast to come in at 0.3% on a monthly basis.
In case there is a noticeable diversion from the market expectation, especially in the monthly core PCE Price Index, there could be a short-lasting and straightforward reaction in the USD, with a stronger-than-forecast print supporting the currency and vice versa.
Meanwhile, investors will pay close attention to changes in risk perception. At the time of press, US stock index futures were down between 0.3% and 0.4%. A bearish action in Wall Street on the last trading day of August could boost the USD and weigh on GBP/USD heading into the weekend.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declined slightly below 50 and GBP/USD retreated below the 100-period Simple Moving Average (SMA), currently located at 1.3490, to reflect a loss of bullish momentum.
On the downside, 1.3460-1.3440 (Fibonacci 50% retracement of the latest downtrend, 100-day SMA, 200-period SMA) aligns as a strong support area before 1.3400-1.3390 (static level, Fibonacci 38.2% retracement of the latest downtrend). Looking north, resistance levels could be spotted at 1.3490-1.3500 (100-period SMA, static level), 1.3540 (Fibonacci 61.8% retracement) and 1.3600 (static level, round 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.
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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.
