GBP/USD Forecast: Pound Sterling could struggle to gather bullish momentum
- GBP/USD fluctuates near 1.2600 in the European session on Friday.
- Market participants await January PCE inflation data from the US.
- US President Trump hinted that they could refrain from imposing tariffs on UK imports.
GBP/USD seems to have entered a consolidation phase near 1.2600 after losing more than 0.5% on Thursday as investors move to the sidelines while waiting for January inflation data from the US.
The US Dollar (USD) benefited from safe-haven flows in the American session on Thursday and gathered strength against its major 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 | 0.59% | 0.23% | 0.83% | 1.49% | 2.23% | 2.44% | 0.36% | |
| EUR | -0.59% | -0.44% | 0.09% | 0.71% | 1.62% | 1.66% | -0.40% | |
| GBP | -0.23% | 0.44% | 0.59% | 1.15% | 2.08% | 2.10% | 0.04% | |
| JPY | -0.83% | -0.09% | -0.59% | 0.64% | 1.47% | 1.67% | -0.38% | |
| CAD | -1.49% | -0.71% | -1.15% | -0.64% | 0.68% | 0.94% | -1.10% | |
| AUD | -2.23% | -1.62% | -2.08% | -1.47% | -0.68% | 0.03% | -1.99% | |
| NZD | -2.44% | -1.66% | -2.10% | -1.67% | -0.94% | -0.03% | -2.02% | |
| CHF | -0.36% | 0.40% | -0.04% | 0.38% | 1.10% | 1.99% | 2.02% |
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).
US President Donald Trump said on Thursday that the 25% tariff package on Mexican and Canadian imports will come into effect on March 4 as planned, rather than April 2nd that he mentioned a day earlier. Additionally, Trump reiterated that another 10% tariff will be imposed on Chinese imports on that same date.
On a positive note, however, "I think there's a very good chance that in the case of these two great, friendly countries, I think we could very well end up with a real trade deal where the tariffs wouldn't be necessary. We'll see," Trump said following his meeting with British Prime Minister Keir Starmer.
Meanwhile, Bank of England (BoE) Deputy Governor Dave Ramsden said early Friday that a gradual and careful approach is needed to rate cuts, helping Pound Sterling hold its ground.
In the second half of the day, the US Bureau of Economic Analysis (BEA) will publish the Personal Consumption Expenditure (PCE) Price Index data for January. In case the reports shows a monthly core PCE Price Index increase of 0.4%, or higher, the USD could preserve its strength heading into the weekend and make it difficult for GBP/USD to stage a rebound. It's also worth mentioning that month-end flows on the last trading day of February could ramp up market volatility toward the end of the European session and cause irregular movements in the pair.
GBP/USD Technical Analysis
GBP/USD closed below the 100-day Simple Moving Average (SMA), currently located at 1.2640, on Thursday and the Relative Strength Index (RSI) indicator on the 4-hour chart declined below 50, highlighting a loss of bullish momentum.
On the downside, 1.2560 (100-period SMA) aligns as first support before 1.2530 (Fibonacci 50% retracement of the latest downtrend) and 1.2500 (round level, static level). Looking north, resistances could be spotted at 1.2640 (100-day SMA) and 1.2700-1.2710 (round level, static level).
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.
