GBP/USD Forecast: Pound Sterling could extend uptrend once it clears 1.3490-1.3500
- GBP/USD stays in a consolidation phase below 1.3500 on Monday.
- The risk-positive market atmosphere could support the pair in the near term.
- UK employment data and the US inflation report could trigger big reaction in GBP/USD.
GBP/USD moves sideways above 1.3450 after gaining more than 1% in the previous week. The pair's technical outlook points to overbought conditions in the near term.
British Pound PRICE Last 7 days
The table below shows the percentage change of British Pound (GBP) against listed major currencies last 7 days. British Pound was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.52% | -1.34% | 0.18% | -0.10% | -0.63% | -0.56% | 0.40% | |
| EUR | 0.52% | -0.77% | 0.72% | 0.43% | -0.24% | -0.05% | 0.92% | |
| GBP | 1.34% | 0.77% | 1.53% | 1.22% | 0.53% | 0.73% | 1.70% | |
| JPY | -0.18% | -0.72% | -1.53% | -0.28% | -0.96% | -0.76% | 0.38% | |
| CAD | 0.10% | -0.43% | -1.22% | 0.28% | -0.70% | -0.47% | 0.48% | |
| AUD | 0.63% | 0.24% | -0.53% | 0.96% | 0.70% | 0.20% | 1.18% | |
| NZD | 0.56% | 0.05% | -0.73% | 0.76% | 0.47% | -0.20% | 0.95% | |
| CHF | -0.40% | -0.92% | -1.70% | -0.38% | -0.48% | -1.18% | -0.95% |
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 gathered bullish momentum in the second half of the previous week as Pound Sterling benefited from the Bank of England (BoE) hawkish rate cut. Speaking on the policy outlook, BoE Chief Economist Huw Pill said on Friday that there is a risk of a spill-over into more persistent inflation.
On the flip side, the US Dollar (USD) struggles to stay resilient against its peers as Federal Reserve (Fed) policymakers hint at a dovish policy stance in the last quarter of the year. Fed Governor Michelle Bowman said on Saturday that the latest weak labor market data underscores her concerns about labor market fragility and strengthens her confidence in her own forecast that three interest rate cuts will likely be appropriate this year.
Early Monday, the UK's FTSE 100 Index gains about 0.3% and US stock index futures marginally higher on the day. In case markets remain risk-positive, especially if the US and China decides to extend the deadline for a trade deal, the USD could have a hard time gathering strength and help GBP/USD hold its ground.
On Tuesday, the UK's Office for National Statistics will publish the employment data. A noticeable decline in the wage inflation figures could hurt Pound Sterling with the initial reaction. Later in the day, July Consumer Price Index (CPI) data from the US will be watched closely by market participants.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70, suggesting that there could be a technical correction before the next leg higher.
On the downside, the immediate support is located at 1.3460 (Fibonacci 50% retracement of the latest downtrend) before 1.3400-1.3390 (round level, static level, 100-period Simple Moving Average (SMA), Fibonacci 382% retracement).
Looking north, a strong resistance level seems to have formed at 1.3490-1.3500 (200-period SMA, static level, round level). In case GBP/USD rises above this area and starts using it as support, 13540 (Fibonacci 61.8% retracement) could be seen as the next resistance level ahead of 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.
