GBP/USD Forecast: Pound Sterling could extend rally if it clears 1.2800 on BoE
- GBP/USD posted strong gains and snapped a four-day lowing streak on Wednesday.
- The US Dollar stays under persistent selling pressure in the Fed aftermath.
- The Bank of England is widely expected to leave the policy rate unchanged at 5.25%.
GBP/USD reversed its direction after dipping below 1.2700 on Wednesday and closed the day decisively higher, supported by the broad-based selling pressure surrounding the US Dollar (USD). The pair stays in a consolidation phase slightly below 1.2800 as markets await the Bank of England's (BoE) policy announcements.
Pound Sterling price this week
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.42% | -0.42% | -0.59% | -1.00% | 1.49% | -0.15% | 0.21% | |
| EUR | 0.41% | 0.01% | -0.17% | -0.58% | 1.89% | 0.27% | 0.61% | |
| GBP | 0.42% | 0.00% | -0.16% | -0.58% | 1.88% | 0.27% | 0.61% | |
| CAD | 0.58% | 0.16% | 0.15% | -0.42% | 2.05% | 0.42% | 0.80% | |
| AUD | 0.99% | 0.58% | 0.57% | 0.41% | 2.46% | 0.84% | 1.18% | |
| JPY | -1.52% | -1.93% | -1.86% | -2.11% | -2.52% | -1.66% | -1.31% | |
| NZD | 0.15% | -0.27% | -0.27% | -0.43% | -0.85% | 1.63% | 0.33% | |
| CHF | -0.19% | -0.61% | -0.62% | -0.78% | -1.21% | 1.30% | -0.35% |
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 Federal Reserve (Fed) announced late Wednesday that it held the policy rate steady at 5.25%-5.5% in a widely anticipated move. The revised Summary of Economic Projections, also known as the dot plot, showed that policymakers were still forecasting a 75 basis point (bps) reduction in the policy rate in 2024, the same as they did in December.
The probability of the Fed leaving the policy rate unchanged in June declined to 25% from 40% before the Fed event, according to the CME FedWatch Tool.
In the post-meeting press conference, Fed Chairman Jerome Powell downplayed the stronger-than-forecast inflation readings and opened the door to an extended USD selloff.
Powell acknowledged that inflation numbers were "quite high" in January and February but said that they have not changed the overall story on disinflation, explaining that they were higher due to seasonal effects.
The BoE is also forecast to maintain the interest rate at 5.25%. Since there will not be a press conference following the announcement of policy decisions, investors will pay close attention to changes in the statement language. market participants are yet to decide on the timing of the BoE policy pivot but in case the BoE opens the door for a rate reduction this summer, the initial reaction could cause Pound Sterling to weaken against its rivals.
Later in the day, the US economic docket will feature the weekly Initial Jobless Claims and S&P Global's preliminary Manufacturing and Services PMI data for March. In the meantime, US stock index futures are up between 0.4% and 0.9%. Unless the data cause the market mood to sour, a continuation of the risk rally after the Wall Street's opening bell could force the USD to stay on the back foot.
GBP/USD Technical Analysis
1.2800 (Fibonacci 23.6% retracement of the latest uptrend) aligns as key resistance for GBP/USD. In case the pair rises above that level and starts using it as support, it could target 1.2850 (static level) and 1.2880 (end-point of the uptrend) next.
On the downside, the 50-period Simple Moving Average (SMA) on the 4-hour chart forms dynamic support at 1.2765 before 1.2750 (Fibonacci 38.2% retracement) and 1.2735 (100-period SMA).
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.
