GBP/USD Forecast: Pound Sterling holds ground after UK inflation data
- GBP/USD trades at around 1.3500 in the European session on Wednesday.
- Annual CPI inflation in the UK rose to 3.8% in July.
- The technical outlook is yet to point to a buildup in recovery momentum.
After falling to a fresh eight-day low near 1.3460 in the Asian session on Wednesday, GBP/USD recovered to the 1.3500 area in the European trading hours. The pair's technical outlook, however, doesn't yet offer any convincing signs of an extended recovery.
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 | 0.58% | 0.50% | 0.24% | 0.41% | 1.17% | 1.67% | 0.24% | |
| EUR | -0.58% | -0.09% | -0.38% | -0.18% | 0.60% | 1.06% | -0.33% | |
| GBP | -0.50% | 0.09% | -0.38% | -0.08% | 0.69% | 1.15% | -0.29% | |
| JPY | -0.24% | 0.38% | 0.38% | 0.20% | 0.97% | 1.48% | 0.02% | |
| CAD | -0.41% | 0.18% | 0.08% | -0.20% | 0.74% | 1.27% | -0.20% | |
| AUD | -1.17% | -0.60% | -0.69% | -0.97% | -0.74% | 0.46% | -0.97% | |
| NZD | -1.67% | -1.06% | -1.15% | -1.48% | -1.27% | -0.46% | -1.45% | |
| CHF | -0.24% | 0.33% | 0.29% | -0.02% | 0.20% | 0.97% | 1.45% |
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 broad-based US Dollar (USD) strength amid a risk-averse market environment caused GBP/USD to stretch lower on Tuesday and early Wednesday, before Pound Sterling found support on July inflation data from the UK.
The UK's Office for National Statistics reported that the Consumer Price Index (CPI) rose by 3.8% on a yearly basis in July. This print followed the 3.6% increase recorded in June and came in above the market expectation of 3.7%. On a monthly basis, the CPI rose by 0.1%, compared to analysts' estimate for a decrease of 0.1%.
Meanwhile, Reuters reported on Tuesday that 50 of 62 polled economists said that they expect the Bank of England (BoE) to lower the policy rate once more this year, in the fourth quarter, by 25 basis points to 3.75%. Although GBP/USD keeps its footing after the latest inflation data, it finds it difficult to gather bullish momentum, with investors already largely anticipating the BoE to cut rates just once more in 2025.
In the late American session, the Federal Reserve (Fed) will release the minutes of the July policy meeting. Since that meeting took place before the release of the latest employment and inflation data from the US, its content might be seen as outdated. Nevertheless, market participants could react to changes in risk perception. A bearish action in Wall Street's main indexes could cause GBP/USD to edge lower in the second half of the day.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 50, reflecting a lack of buyer interest.
In case 1.3500 (static level, 50-day Simple Moving Average (SMA), round level) is confirmed as resistance, 1.3460 (Fibonacci 50% retracement of the latest downtrend, 200-period SMA) could be seen as the next support before 1.3410-1.3400 (Fibonacci 38.2% retracement, 100-period SMA) and 1.3330 (static level).
Looking north, resistance levels could be seen at 1.3540 (Fibonacci 61.8% retracement), 1.3590-1.3600 (static level, round level) and 1.3640 (Fibonacci 78.6% 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.
