GBP/USD Forecast: Pound Sterling could stretch higher if risk mood improves
- GBP/USD trades in positive territory above 1.2950 early Thursday.
- Disappointing PMI data from the UK limit Pound Sterling's upside.
- The pair could extend its recovery in case risk mood improves.
GBP/USD holds its ground and trades modestly higher on the day above 1.2950 in the European morning on Thursday. Pound Sterling could benefit from an improving risk mood in the second half of the day and stretch higher.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.63% | 0.69% | 1.67% | 0.04% | 0.80% | 0.70% | 0.19% | |
| EUR | -0.63% | -0.01% | 0.95% | -0.54% | 0.14% | -0.05% | -0.53% | |
| GBP | -0.69% | 0.01% | 0.97% | -0.64% | 0.13% | 0.00% | -0.55% | |
| JPY | -1.67% | -0.95% | -0.97% | -1.61% | -0.85% | -0.90% | -1.52% | |
| CAD | -0.04% | 0.54% | 0.64% | 1.61% | 0.68% | 0.72% | 0.02% | |
| AUD | -0.80% | -0.14% | -0.13% | 0.85% | -0.68% | -0.04% | -0.69% | |
| NZD | -0.70% | 0.05% | -0.01% | 0.90% | -0.72% | 0.04% | -0.56% | |
| CHF | -0.19% | 0.53% | 0.55% | 1.52% | -0.02% | 0.69% | 0.56% |
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) preserved its strength on Wednesday and caused GBP/USD to drop to its weakest level since mid-August near 1.2900. The USD capitalized on rising US Treasury bond yields and found demand as a safe-haven, while Wall Street's main indexes declined sharply after the opening bell.
The data from the UK showed on Thursday that the business activity in the private sector expanded at a softening pace in early October. S&P Global/CIPS Composite PMI declined to 51.7 in October's flash reading from 52.6 in September.
Commenting on the survey's findings, "a further cooling of input cost inflation to the lowest for four years opens the door for the Bank of England to take a more aggressive stance towards lowering interest rates, should the current slowdown become more entrenched," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
The weekly Initial Jobless Claims and October S&P Global PMI data will be featured in the US economic docket on Thursday. In case the number of first-time applications for unemployment benefits decline sharply, with a reading below 220K, GBP/USD could have a hard time pushing higher. On the other hand, the USD is likely to lose interest if the Composite PMI unexpectedly falls below 50 from September's print of 54.
Meanwhile, S&P 500 Futures and Nasdaq Futures were last seen rising 0.45% and 0.75, respectively. If risk flows dominate the action in financial markets in the American session, the USD could find it difficult to stay resilient against its peers.
GBP/USD Technical Analysis
GBP/USD trades in the upper half of the descending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart rises toward 50, reflecting a loss of bearish momentum in the near term. The 100-day Simple Moving Average (SMA) aligns as immediate resistance at 1.2970. If GBP/USD flips that level into support, 1.3000 (round level, static level) and 1.3020 (upper limit of the channel) could be seen as next resistance levels.
On the downside, first support is located at 1.2900 (mid-point of the descending channel) before 1.2800 (lower limit of the descending channel).
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.
