GBP/USD Forecast: Pound Sterling could stretch lower while it remains below 1.2700
- GBP/USD fluctuates near 1.2700 after posting losses on Thursday.
- Disappointing UK data make it difficult for Pound Sterling to stage a rebound.
- Sellers could look to retain control if the pair fails to stabilize above 1.2700.
GBP/USD closed in negative territory on Thursday and snapped a four-day winning streak. After touching its lowest level in a week below 1.2680 in the early European session on Friday, the pair recovered to the 1.2700 area.
The UK's Office for National Statistics (ONS) reported earlier in the day that Retail Sales declined 2.3% on a monthly basis in April. This reading followed the 0.2% decrease recorded in March and came in worse than the market expectation for a contraction of 0.4%. This disappointing data doesn't allow Pound Sterling to gather strength against its rivals.
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 | 0.40% | -0.01% | 0.89% | 0.77% | 1.25% | 0.48% | 0.63% | |
| EUR | -0.40% | -0.44% | 0.54% | 0.39% | 0.89% | 0.09% | 0.23% | |
| GBP | 0.01% | 0.44% | 0.84% | 0.83% | 1.32% | 0.51% | 0.67% | |
| JPY | -0.89% | -0.54% | -0.84% | -0.14% | 0.35% | -0.40% | -0.26% | |
| CAD | -0.77% | -0.39% | -0.83% | 0.14% | 0.43% | -0.29% | -0.14% | |
| AUD | -1.25% | -0.89% | -1.32% | -0.35% | -0.43% | -0.80% | -0.68% | |
| NZD | -0.48% | -0.09% | -0.51% | 0.40% | 0.29% | 0.80% | 0.15% | |
| CHF | -0.63% | -0.23% | -0.67% | 0.26% | 0.14% | 0.68% | -0.15% |
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).
Later in the day, Durable Goods Orders figures for April will be featured in the US economic docket. These data, however, are unlikely to impact the US Dollar's valuation as they are not expected to influence the Federal Reserve's (Fed) rate outlook.
On Thursday, the data from the US showed that S&P Global Composite PMI rose to 54.4 in May's flash estimate, highlighting that the business activity in the private sector expanded at its strongest pace in two years. The probability of the Fed leaving its policy rate unchanged climbed to nearly 50% after the PMI report, according to the CME FedWatch Tool, from 35% earlier in the week.
Investors could react to changes in risk perception heading into the weekend. Following the sharp decline seen in Wall Street's main indexes on Thursday, US stock index futures trade modestly higher in the European session on Friday. A rebound in US stocks ahead of the weekend could limit the USD's gains and help GBP/USD hold its ground.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 50, pointing to a lack of directional momentum. If GBP/USD fails to stabilize above 1.2700, 1.2660 (Fibonacci 61.8% retracement of the latest downtrend) could be seen as next support before the critical 1.2630 level, where the 200-day Simple Moving Average (SMA) and the lower limit of the ascending channel meet.
On the upside, immediate resistance aligns at 1.2720 (mid-point of the ascending channel) ahead of 1.2760 (Fibonacci 78.6% retracement) and 1.2800 (upper limit of the ascending 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, 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.
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.
