GBP/USD Forecast: Pound Sterling could set new multi-year high
- GBP/USD advances beyond 1.3500 on the first trading day of June.
- The US Dollar (USD) struggles to find demand as markets turn risk-averse.
- Investors await May ISM Manufacturing PMI data from the US.
After ending the previous week in negative territory, GBP/USD gains traction on Monday and trades near 1.3550. In case the US Dollar (USD) fails to stage a rebound, the pair could target the multi-year high it set at near 1.3600 in late May.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.64% | -0.59% | -0.70% | -0.35% | -0.68% | -0.88% | -0.61% | |
| EUR | 0.64% | 0.04% | -0.07% | 0.27% | -0.04% | -0.28% | 0.01% | |
| GBP | 0.59% | -0.04% | -0.08% | 0.23% | -0.08% | -0.32% | -0.03% | |
| JPY | 0.70% | 0.07% | 0.08% | 0.35% | 0.00% | -0.20% | -0.01% | |
| CAD | 0.35% | -0.27% | -0.23% | -0.35% | -0.33% | -0.55% | -0.26% | |
| AUD | 0.68% | 0.04% | 0.08% | -0.01% | 0.33% | -0.18% | 0.14% | |
| NZD | 0.88% | 0.28% | 0.32% | 0.20% | 0.55% | 0.18% | 0.29% | |
| CHF | 0.61% | -0.01% | 0.03% | 0.00% | 0.26% | -0.14% | -0.29% |
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 USD stays under heavy bearish pressure to start the new week as markets turn cautious following the latest developments surrounding the US-China trade conflict.
On Friday, United States (US) President Donald Trump said China has violated its trade agreement with the US. In response, the Chinese Ministry of Commerce said early Monday that the US had breached the 90-day trade truce by introducing a series of discriminatory and restrictive measures. "Instead of reflecting on its own actions, it has falsely accused China of violating the consensus, which is a serious distortion of the facts,” the ministry added.
Reflecting the souring market mood, US stock index futures were last seen losing between 0.4% and 0.6%. In case Wall Street's main indexes open on a bearish note, the USD could have a difficult time holding its ground.
Later in the American session, investors will also pay close attention to the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers Index (PMI) data for May. In case the headline PMI, which is forecast to edge higher to 49.5 from 48.7 in April, comes in above 50 and points to an expansion in the manufacturing sector's business activity, the USD could find demand with the immediate reaction and cap GBP/USD's upside. Conversely, a disappointing PMI print could further weigh on the USD and allow the pair to extend its daily rally.
GBP/USD Technical Analysis
GBP/USD trades within the upper half of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart stays above 60, reflecting a bullish bias in the near term.
On the upside, 1.3590-1.3600 (multi-year high, static level) aligns as the first resistance area before 1.3700 (static level) and 1.3750 (upper limit of the ascending channel). Looking south, supports could be seen at 1.3520 (mid-point of the ascending channel), 1.3480-1.3470 (50-period Simple Moving Average (SMA), 20-period SMA) and 1.3400 (static level, 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, 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.
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.
