GBP/USD Forecast: Pound Sterling could push higher once it clears 1.2670-1.2680


  • GBP/USD clings to modest gains above 1.2650 in the European session.
  • Buyers could remain interested in case the pair stabilizes above 1.2670-1.2680.
  • Improving risk mood could make it difficult for the USD to find demand.

GBP/USD registered strong daily gains on Wednesday and continued to stretch higher early Thursday. The pair stays in positive territory above 1.2650 in the European session and the technical outlook points to a bullish tilt in the near term.

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 Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.61% -0.23% -0.16% -1.09% 0.24% -0.90% 0.49%
EUR 0.61%   0.39% 0.47% -0.47% 0.85% -0.29% 1.10%
GBP 0.22% -0.39%   0.07% -0.86% 0.45% -0.67% 0.71%
CAD 0.16% -0.45% -0.06%   -0.94% 0.37% -0.76% 0.64%
AUD 1.07% 0.46% 0.88% 0.91%   1.30% 0.17% 1.55%
JPY -0.24% -0.82% -0.46% -0.38% -1.29%   -1.13% 0.26%
NZD 0.89% 0.28% 0.67% 0.76% -0.17% 1.12%   1.39%
CHF -0.48% -1.11% -0.71% -0.64% -1.58% -0.26% -1.39%  

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 broad-based selling pressure surrounding the US Dollar (USD) provided a boost to GBP/USD midweek. Once the pair climbed above the 200-day Simple Moving Average (SMA) at 1.2590, technical buyers took action, allowing the pair to extend its rally.

Meanwhile, the data from the US showed that the economic activity in the service sector expanded at a softening pace in March, with the ISM Services PMI declining to 51.4 from 52.6 in February. Moreover, the Prices Paid Index fell to 53.4 from 58.6 in the same period, showing a pullback in the sector's input inflation.

At the time of press, US stock index futures were up between 0.3% and 0.45% on the day. In case risk flows dominate the action in the second half of the day, the USD could have a hard time finding demand.

The US economic calendar will offer weekly Initial Jobless Claims data. Ahead of Friday's Nonfarm Payrolls (NFP) report for March, however, investors could refrain from taking large positions based on this data alone.

GBP/USD Technical Analysis

The 50-day SMA, the Fibonacci 38.2% retracement of the latest downtrend and the 200-period SMA on the 4-hour chart form immediate resistance at 1.2670-1.2680. In case GBP/USD rises above that level and starts using it as support, 1.2710 (Fibonacci 50% retracement) and 1.2750 (Fibonacci 61.8% retracement) could be seen as next resistance levels.

On the downside, the 100-day SMA aligns as first support at 1.2660. If GBP/USD drops below that level, technical sellers could take action. In this scenario, 1.2620 (Fibonacci 23.6% retracement) could be seen as next support before 1.2590 (200-day 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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