GBP/USD Forecast: Pound Sterling drops below key technical level
- GBP/USD trades near 1.2400 in the European session on Friday.
- The technical outlook highlights a buildup of bearish momentum.
- The pair could face next support at 1.2370.
GBP/USD struggles to hold its ground and retreats toward 1.2400 after closing in negative territory on Thursday. The pair's technical outlook suggests that sellers could look to retain control in the near term.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.20% | 0.60% | -0.71% | 0.85% | 1.48% | 0.99% | 0.67% | |
| EUR | -1.20% | -0.52% | -1.76% | -0.22% | 0.28% | -0.09% | -0.43% | |
| GBP | -0.60% | 0.52% | -1.53% | 0.32% | 0.81% | 0.45% | 0.10% | |
| JPY | 0.71% | 1.76% | 1.53% | 1.62% | 2.39% | 1.95% | 1.53% | |
| CAD | -0.85% | 0.22% | -0.32% | -1.62% | 0.42% | 0.13% | -0.22% | |
| AUD | -1.48% | -0.28% | -0.81% | -2.39% | -0.42% | -0.33% | -0.66% | |
| NZD | -0.99% | 0.09% | -0.45% | -1.95% | -0.13% | 0.33% | -0.57% | |
| CHF | -0.67% | 0.43% | -0.10% | -1.53% | 0.22% | 0.66% | 0.57% |
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) struggled to gather following mixed macroeconomic data releases on Thursday. Later in the American session, however, the cautious market stance didn't allow GBP/USD to edge higher.
The US Bureau of Economic Analysis (BEA) reported on Thursday that the US' Gross Domestic Product grew at an annual rate of 2.3% in the fourth quarter, below the 3.1% expansion recorded in the third quarter and the market estimate of 2.6%. Other data from the US showed that weekly Initial Jobless Claims in the US declined to 207,000 in the week ending January 25 from 223,000 in the previous week.
Meanwhile, US President Donald Trump reiterated late Thursday that the US is set to impose a flat 25% import tax "because of fentanyl" on all goods crossing the border into the US from Canada or Mexico.
In the second half of the day, the BEA will publish Personal Consumption Expenditures (PCE) Price Index data for December. On a monthly basis, the core PCE Price Index is expected to rise 0.2%. A reading of 0.3%, or higher, could lift the USD and force GBP/USD to push lower heading into the weekend.
GBP/USD Technical Analysis
GBP/USD stays below the 200-period SMA and the Fibonacci 50% retracement of the latest downtrend, currently located in the 1.2440-1.2420 area, and the Relative Strength Index (RSI) indicator on the four-hour chart drops toward 40, reflecting a buildup of bearish momentum.
On the downside, 1.2400 (static level, round level) could be seen as immediate support before 1.2370 (Fibonacci 38.2% retracement) and 1.2315 (100-period SMA). Looking north, resistances align at 1.2420-1.2440, 1.2500 (round level, static level) and 1.2530 (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, 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.
