GBP/USD Forecast: Pound Sterling holds ground as markets assess BoE outlook, geopolitics
- GBP/USD clings to modest gains near 1.3500 in the European session on Friday.
- The Bank of England left its policy rate unchanged at 4.25% as expected.
- Easing concerns over the US' involvement in the Israel-Iran conflict helps the market mood improve.
GBP/USD trades modestly higher on the day at around 1.3500 after closing in positive territory on Thursday. The pair, however, could have a difficult time gathering bullish momentum in the near term.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.25% | -0.17% | -0.04% | -0.07% | -0.27% | 0.01% | 0.01% | |
| EUR | 0.25% | 0.05% | 0.22% | 0.18% | 0.14% | 0.27% | 0.28% | |
| GBP | 0.17% | -0.05% | 0.26% | 0.13% | 0.10% | 0.22% | 0.23% | |
| JPY | 0.04% | -0.22% | -0.26% | 0.02% | -0.24% | -0.09% | 0.00% | |
| CAD | 0.07% | -0.18% | -0.13% | -0.02% | -0.16% | -0.15% | 0.09% | |
| AUD | 0.27% | -0.14% | -0.10% | 0.24% | 0.16% | 0.41% | 0.12% | |
| NZD | -0.01% | -0.27% | -0.22% | 0.09% | 0.15% | -0.41% | 0.00% | |
| CHF | -0.01% | -0.28% | -0.23% | -0.00% | -0.09% | -0.12% | -0.00% |
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 Bank of England (BoE) announced on Thursday that it maintained the bank rate at 4.25%, as expected. Three members of the Monetary Policy Committee (MPC), however, voted in favor of a 25 basis points (bps) rate cut, citing material further loosening in the labour market, subdued consumer demand and pay deals near sustainable rates. In the policy statement, the BoE reiterated that a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate.
Although GBP/USD edged lower with the immediate reaction, the renewed US Dollar (USD) weakness helped the pair gain traction in the second half of the day.
Improving market mood on news of US President Donald Trump giving Iran another chance to make a deal to end its nuclear program and delaying his final decision on launching strikes for up to two weeks caused the USD to lose interest.
Early Friday, the data published by the UK's Office for National Statistics showed that Retail Sales declined by 2.7% on a monthly basis in May. This reading came in worse than the market expectation for a decrease of 0.5% but failed to trigger a noticeable market reaction.
In the absence of high-impact data releases, market participants are likely to remain focused on geopolitics. A bullish opening in Wall Street could hurt the USD and help GBP/USD edge higher heading into the weekend. Nevertheless, investors could remain reluctant to bet on a persistent Pound Sterling strength following the BoE event.
GBP/USD Technical Analysis
GBP/USD climbed above the 200-period Simple Moving Average (SMA) on the 4-hour chart and the Relative Strength Index (RSI) indicator recovered slightly above 50, highlighting a loss of bearish momentum.
On the upside, 1.3520 (50-period SMA, 100-period SMA, Fibonacci 23.6% retracement of the latest uptrend) aligns as a strong resistance level before 1.3600 (static level, round level) and 1.3630 (end-point of the uptrend). Looking south, supports could be spotted at 1.3450-1.3440 (Fibonacci 38.2% retracement, 200-period SMA), 1.3400 (Fibonacci 50% retracement) and 1.3340 (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.
