GBP/USD Forecast: Pound Sterling could extend slide if 1.3100 support fails
- GBP/USD stays in a consolidation phase slightly above 1.3100 on Wednesday.
- The technical outlook doesn't yet show a buildup of recovery momentum.
- The risk-averse market environment could cap the pair's upside.
GBP/USD dropped to its lowest level in over a week below 1.3100 on Tuesday but managed to close the day above this level. The pair trades marginally higher in the European session on Wednesday as investors await the next catalyst.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | 0.02% | -0.68% | 0.52% | 0.86% | 0.98% | -0.12% | |
| EUR | 0.08% | 0.12% | -0.61% | 0.58% | 0.95% | 1.05% | -0.05% | |
| GBP | -0.02% | -0.12% | -0.74% | 0.45% | 0.80% | 0.95% | -0.19% | |
| JPY | 0.68% | 0.61% | 0.74% | 1.15% | 1.57% | 1.78% | 0.48% | |
| CAD | -0.52% | -0.58% | -0.45% | -1.15% | 0.38% | 0.45% | -0.64% | |
| AUD | -0.86% | -0.95% | -0.80% | -1.57% | -0.38% | 0.09% | -0.99% | |
| NZD | -0.98% | -1.05% | -0.95% | -1.78% | -0.45% | -0.09% | -1.09% | |
| CHF | 0.12% | 0.05% | 0.19% | -0.48% | 0.64% | 0.99% | 1.09% |
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 US Dollar (USD) showed no immediate reaction to the ISM Manufacturing PMI data on Tuesday, which edged higher to 47.2 in August from 46.8 in July. The risk-averse market atmosphere, as reflected by the sharp decline seen in Wall Street's main indexes, allowed the USD to hold its ground and forced GBP/USD to stretch lower.
In the European session, US stock index futures are down between 0.15% and 0.6% on the day. In case safe-haven flows continue to dominate the action in financial markets in the second half of the day, GBP/USD could have a difficult time extending its rebound.
Investors will also pay close attention to the JOLTS Job Openings data for July on Wednesday. Markets expect the number of job openings to stand at 8.1 million on the last business day of July. A reading at or above 8.5 million could ease concerns over the labor market outlook and help the USD gather strength with the immediate reaction. On the flip side, a lower-than-expected print could hurt the USD and allow GBP/USD to edge higher.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator recovered above 40 after falling toward 30 on Tuesday, reflecting sellers' hesitancy.
GBP/USD trades near 1.3130, where the Fibonacci 23.6% retracement of level of the latest uptrend meets the 20-period Simple Moving Average (SMA) on the 4-hour chart. In case the pair flips that level into support, 1.3170 (50-period SMA) could be seen as next resistance before 1.3200 (psychological level, static level).
On the downside, 1.3100 (psychological level, static level) aligns as first support before 1.3060 (100-period SMA) and 1.3040 (Fibonacci 38.2% retracement).
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.
