GBP/USD Forecast: Pound Sterling holds steady as focus shifts to key US data
- GBP/USD trades in a narrow channel above 1.3500 in the European session on Wednesday.
- The US economic calendar will offer ADP Employment Change and ISM Services PMI data.
- The pair's near-term technical outlook fails to provide a directional clue.
GBP/USD moves up and down in a tight band above 1.3500 in the European session on Wednesday after posting small losses on Tuesday. The near-term technical outlook highlights the pair's indecisiveness ahead of key data releases from the US.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.32% | -0.53% | 0.10% | -0.18% | -0.66% | -0.83% | 0.02% | |
| EUR | 0.32% | -0.22% | 0.44% | 0.13% | -0.33% | -0.54% | 0.33% | |
| GBP | 0.53% | 0.22% | 0.68% | 0.37% | -0.11% | -0.34% | 0.55% | |
| JPY | -0.10% | -0.44% | -0.68% | -0.30% | -0.78% | -0.96% | -0.19% | |
| CAD | 0.18% | -0.13% | -0.37% | 0.30% | -0.47% | -0.67% | 0.20% | |
| AUD | 0.66% | 0.33% | 0.11% | 0.78% | 0.47% | -0.15% | 0.75% | |
| NZD | 0.83% | 0.54% | 0.34% | 0.96% | 0.67% | 0.15% | 0.88% | |
| CHF | -0.02% | -0.33% | -0.55% | 0.19% | -0.20% | -0.75% | -0.88% |
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 renewed US Dollar (USD) strength on improving risk mood and the better-than-expected JOLTS Job Openings data caused GBP/USD to stretch lower on Tuesday. Meanwhile, mixed comments from Bank of England (BoE) officials during the testimony before the UK Treasury Select Committee made it difficult for Pound Sterling to attract buyers.
BoE policymaker Swati Dhingra adopted a dovish tone and said that an overly restrictive monetary policy was risking suppressing demand and disincentivizing investment. On a hawkish point, BoE policymaker Catherine Mann argued that future policy decisions will require certainty that inflation is on track. "Services price inflation is above what I view as consistent with getting Consumer Price Index (CPI) back to target," Mann said. Meanwhile, BoE Governor Andrew Bailey repeated that they need to have a gradual and careful approach to further policy easing
Later in the day, the US economic calendar will offer the ADP Employment Change and the ISM Services PMI data for May.
In case the ADP data comes in above the market expectation of 115,000 and highlights health conditions in the labor market, the USD could gather strength with the immediate reaction and cause GBP/USD to turn south.
Similarly, the market reaction to the ISM Services PMI is likely to be straightforward. If the data arrives below 50 and shows a contraction in the service sector's business activity, the USD could struggle to hold its ground, opening the door for a leg higher in GBP/USD.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 50 and GBP/USD holds above the ascending trend line, reflecting a lack of seller interest.
On the upside, 1.3550 (mid-point of the ascending channel) aligns as the first resistance level ahead of 1.3600 (static level, round level) and 1.3700 (static level, round level). Looking south, supports could be seen at 1.3500 (20-period Simple Moving Average (SMA), ascending trend line), 1.3430 (100-period SMA) and 1.3380 (Fibonacci 23.6% retracement of the latest uptrend).
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.
