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GBP/USD Forecast: Pound Sterling holds above key support but outlook remains bearish

  • GBP/USD stabilizes near 1.3050 in the European session on Thursday.
  • The near-term technical picture suggests that the bearish outlook remains unchanged.
  • The US economic calendar will offer mid-tier macroeconomic data.

GBP/USD lost its traction in the early American session on Wednesday and dropped to its lowest level since August 20 near 1.3000 before staging a modest rebound on improving risk mood later in the day. The pair holds steady at around 1.3050 in the European session on Thursday.

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.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.60%0.56%0.27%0.06%-0.10%0.64%1.18%
EUR-0.60% -0.10%-0.28%-0.55%-0.74%0.06%0.58%
GBP-0.56%0.10% -1.44%-0.45%-0.65%0.14%0.66%
JPY-0.27%0.28%1.44% -0.25%-0.37%0.35%1.08%
CAD-0.06%0.55%0.45%0.25% -0.10%0.58%1.30%
AUD0.10%0.74%0.65%0.37%0.10% 0.79%1.29%
NZD-0.64%-0.06%-0.14%-0.35%-0.58%-0.79% 0.53%
CHF-1.18%-0.58%-0.66%-1.08%-1.30%-1.29%-0.53% 

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).

Following a bearish start to the day, the US Dollar (USD) gathered strength following the August inflation report on Wednesday. The US Bureau of Labor Statistics reported that annual inflation, as measured by the change in the Consumer Price Index (CPI), softened to 2.5% in August from 2.9% in July. However, the core CPI, which excludes volatile food and energy prices, increased 0.3% on a monthly basis, coming in above the market expectation of 0.2%.

The US economic docket will feature weekly Initial Jobless Claims and the August Producer Price Index (PPI) data on Thursday. The CME FedWatch Tool shows that markets are currently pricing in a less than 15% probability of a 50 basis points rate cut. The market positioning suggests that the USD doesn't have a lot of room left on the upside. In case there is a significant increase in the number of first-time applications for unemployment benefits, the immediate reaction could hurt the USD.

Meanwhile, US stock index futures trade modestly higher on the day. A bullish opening in Wall Street could make it difficult for the USD to preserve its strength and allow GBP/USD to gather recovery momentum.

GBP/USD Technical Analysis

The relative Strength Index (RSI) indicator on the 4-hour chart recovers but remains below 50. Additionally, GBP/USD is yet to make a 4-hour close above the 20-period Simple Moving Average (SMA), reflecting a lack of buyer interest.

On the downside, 1.3000 (static level, psychological level) aligns as first support before 1.2970 (Fibonacci 50% retracement of the latest uptrend, 200-period SMA) and 1.2900 (Fibonacci 61.8% retracement). In case GBP/USD continues to use 1.3040 (Fibonacci 38.2% retracement) as support, 1.3100 (static level) could be seen as next resistance ahead of 1.3130 (50-period SMA, 100-period SMA).

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

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.

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