GBP/USD Forecast: Pound Sterling could struggle to find direction ahead of Fed decision
- GBP/USD turned south after closing in positive territory on Monday.
- Buyers refrain from committing to an extended rebound as key resistance holds.
- US economic docket will feature mid-tier data releases on Tuesday.
GBP/USD registered its highest daily close in nearly three weeks on Monday above 1.2550 but failed to preserve its bullish momentum. The pair stays on the back foot early Tuesday, while managing to hold above 1.2500.
The selling pressure surrounding the US Dollar (USD) at the beginning of the week helped GBP/USD stretch higher. Early Tuesday, the cautious market stance allows the USD to stay resilient against its rivals and makes it difficult for the pair to regain its traction. After Wall Street's main indexes closed in positive territory on Monday, US stock index futures edge lower in the European session.
Pound Sterling price today
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies today. Pound Sterling was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.10% | 0.18% | 0.18% | 0.55% | 0.34% | 0.58% | 0.20% | |
| EUR | -0.10% | 0.06% | 0.07% | 0.45% | 0.29% | 0.47% | 0.09% | |
| GBP | -0.17% | -0.08% | 0.00% | 0.38% | 0.16% | 0.39% | 0.01% | |
| CAD | -0.17% | -0.07% | 0.01% | 0.36% | 0.15% | 0.40% | 0.02% | |
| AUD | -0.55% | -0.44% | -0.35% | -0.37% | -0.21% | 0.02% | -0.34% | |
| JPY | -0.34% | -0.23% | -0.17% | -0.17% | 0.21% | 0.22% | -0.17% | |
| NZD | -0.56% | -0.47% | -0.40% | -0.40% | -0.02% | -0.24% | -0.38% | |
| CHF | -0.18% | -0.10% | -0.02% | -0.03% | 0.35% | 0.17% | 0.38% |
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).
Later in the day, the US economic docket will feature the Employment Cost Index (ECI) for the first quarter and Conference Board's Consumer Confidence Index data for April. In case the ECI comes in above the market expectation, the initial market reaction could further support the USD.
Investors, however, are unlikely to take large positions ahead of the Federal Reserve's (Fed) monetary policy announcements on Wednesday.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declined below 60 after coming within a touching distance of 70 on Tuesday, pointing to a loss of bullish momentum. Additionally, GBP/USD turned south after reaching the 200-day Simple Moving Average (SMA) at 1.2560, reaffirming the strength of this resistance.
On the downside, 1.2500 (psychological level, static level, 100-period SMA on the 4-hour chart) aligns as immediate support. If GBP/USD falls below that level and starts using it as resistance, technical sellers could take action. In this scenario, 1.2450 (Fibonacci 23.6% retracement of the latest downtrend) could be seen as next support before 1.2400 (static level, psychological level).
1.2560 (200-day SMA) aligns as key resistance for GBP/USD. Once that level is confirmed as support, buyers could target 1.2600 (Fibonacci 50% retracement) and 1.2670 (Fibonacci 61.8% retracement).
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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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.
