GBP/USD Forecast: Pound Sterling could extend slide if 1.3650 support fails
- GBP/USD fluctuates at around 1.3700 in the European session on Monday.
- The near-term technical outlook points to a loss of bullish momentum.
- The US economic calendar will not feature any high-impact data releases.
GBP/USD corrects lower and trades at around 1.3700 on Monday after gaining about 2% last week. The pair's technical outlook points to a loss of bullish momentum in the short term.
British Pound PRICE This month
The table below shows the percentage change of British Pound (GBP) against listed major currencies this month. British Pound was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -3.04% | -1.53% | -0.03% | -0.99% | -1.46% | -1.78% | -3.12% | |
| EUR | 3.04% | 1.58% | 3.08% | 2.11% | 1.66% | 1.62% | -0.08% | |
| GBP | 1.53% | -1.58% | 1.50% | 0.53% | 0.09% | -0.12% | -1.62% | |
| JPY | 0.03% | -3.08% | -1.50% | -0.97% | -1.35% | -1.62% | -3.04% | |
| CAD | 0.99% | -2.11% | -0.53% | 0.97% | -0.39% | -0.67% | -2.16% | |
| AUD | 1.46% | -1.66% | -0.09% | 1.35% | 0.39% | -0.04% | -1.72% | |
| NZD | 1.78% | -1.62% | 0.12% | 1.62% | 0.67% | 0.04% | -1.67% | |
| CHF | 3.12% | 0.08% | 1.62% | 3.04% | 2.16% | 1.72% | 1.67% |
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 rose sharply last week as the risk-positive market atmosphere, on easing geopolitical tensions, and growing concerns over the Federal Reserve (Fed) losing its independence weighed heavily on the US Dollar (USD).
Early Monday, the UK's FTSE 100 Index trades modestly lower on the day, while US stock index futures stay in positive territory. In case markets adopt a cautious stance in the second half of the day, the USD could find a foothold and make it difficult for GBP/USD to gather bullish momentum.
In the meantime, the UK government announced in a press release on Monday that the UK-US trade deal has officially come into force. UK car manufacturers can now export to the US under a reduced 10% tariff quota and the UK aerospace sector will have 10% tariffs on goods like engines and aircraft parts removed.
Later in the session, Dallas Fed Manufacturing Index will be featured in the US economic calendar, which is unlikely to trigger a noticeable market reaction. It's important to note that position adjustments and profit-taking on the last day of the first half of the year could ramp up the pair's volatility toward the end of the European session.
GBP/USD Technical Analysis
GBP/USD declined slightly below the 20-period Simple Moving Average (SMA) on the 4-hour chart and the Relative Strength Index (RSI) indicator fell below 60, reflecting a loss of bullish momentum.
On the downside, 1.3650 (mid-point of the ascending regression channel) aligns as the next support level before 1.3600 (static level, round level) and 1.3560 (100-period SMA). In case GBP/USD stabilizes above 1.3700 and confirms that level as support, 1.3750 (static level, round level) and 1.3810 (upper limit of the ascending channel) could be seen as next resistance levels.
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.
