GBP/USD Forecast: Pound Sterling holds ground after mixed UK data
- GBP/USD clings to modest gains near 1.3300 after posting losses on Wednesday.
- The UK's GDP grew at a faster pace than expected in Q1.
- Markets await April Producer Price Index data from the US.
After climbing to a weekly high above 1.3350 in the European session on Wednesday, GBP/USD reversed its direction and ended the day in negative territory. The pair holds its ground in the European session on Thursday and trades slightly below 1.3300.
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 strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.42% | 0.13% | -0.25% | 0.60% | 0.00% | 0.72% | 0.34% | |
| EUR | -0.42% | -0.15% | -0.13% | 0.67% | 0.22% | 0.78% | 0.41% | |
| GBP | -0.13% | 0.15% | 0.19% | 0.82% | 0.38% | 0.86% | 0.56% | |
| JPY | 0.25% | 0.13% | -0.19% | 0.84% | -0.37% | 0.11% | 0.37% | |
| CAD | -0.60% | -0.67% | -0.82% | -0.84% | -0.31% | 0.12% | -0.26% | |
| AUD | -0.01% | -0.22% | -0.38% | 0.37% | 0.31% | 0.46% | 0.15% | |
| NZD | -0.72% | -0.78% | -0.86% | -0.11% | -0.12% | -0.46% | -0.40% | |
| CHF | -0.34% | -0.41% | -0.56% | -0.37% | 0.26% | -0.15% | 0.40% |
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 UK's Office for National Statistics (ONS) reported early Thursday that the Gross Domestic Product (GDP) expanded at an annual rate of 1.3% in the first quarter. This reading followed the 1.5% growth recorded in the previous quarter but came in above the market expectation of 1.2%. On a negative note, the ONS said that Manufacturing Production and Industrial Production contracted by 0.8% and 0.7%, respectively, on a monthly basis in March.
Commenting on the UK economic outlook, "there's clearly economic headwinds, and the world is changing," British finance minister Rachel Reeves said. "We can see that all around us, but we are a strong economy."
Pound Sterling struggles to gather strength following these data releases as investors still see a strong chance of the Bank of England (BoE) lowering the interest rate in August after a policy hold in June. According to Reuters, markets are currently pricing in about a 65% probability of an August rate cut.
The US economic calendar will offer April Producer Price Index (PPI) and Retail Sales data later in the day. On a monthly basis, the PPI is expected to rise 0.3% following the 0.1% decline reported in March. A reading below the market forecast could hurt the USD with the immediate reaction and help GBP/USD stretch higher.
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.
On the upside, 1.3300 (100-period Simple Moving Average (SMA) on the 4-hour chart, 20-day SMA) aligns as first resistance before 1.3400 (static level) and 1.3450 (end-point of the latest uptrend).
Looking south, supports could be spotted at 1.3260 (Fibonacci 23.6% retracement) of the latest uptrend, 1.3200-1.3190 (static level, 200-period SMA) and 1.3160 (Fibonacci 38.2% 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.
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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.
