GBP/USD Forecast: Pound Sterling looks to build on weekly gains
- GBP/USD trades in positive territory above 1.3470 in the European session on Wednesday.
- The US Dollar remains under selling pressure after the US government officially shut down.
- The near-term technical outlook suggests that the bullish bias remains intact.
GBP/USD continues to stretch higher and trades above 1.3470 in the European session on Wednesday, after posting modest gains on Monday and Tuesday. The pair's technical outlook highlights a bullish stance as market participants keep a close eye on US politics.
Pound Sterling 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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.42% | -0.55% | -1.60% | -0.12% | -1.00% | -0.51% | -0.29% | |
| EUR | 0.42% | -0.13% | -1.35% | 0.29% | -0.58% | -0.10% | 0.12% | |
| GBP | 0.55% | 0.13% | -1.11% | 0.43% | -0.50% | 0.04% | 0.25% | |
| JPY | 1.60% | 1.35% | 1.11% | 1.53% | 0.64% | 0.98% | 1.37% | |
| CAD | 0.12% | -0.29% | -0.43% | -1.53% | -0.84% | -0.39% | -0.18% | |
| AUD | 1.00% | 0.58% | 0.50% | -0.64% | 0.84% | 0.48% | 0.70% | |
| NZD | 0.51% | 0.10% | -0.04% | -0.98% | 0.39% | -0.48% | 0.36% | |
| CHF | 0.29% | -0.12% | -0.25% | -1.37% | 0.18% | -0.70% | -0.36% |
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 selling pressure surrounding the US Dollar (USD) helps GBP/USD extend its weekly uptrend.
During the Asian trading hours, the USD weakened against its rivals as the US federal government has officially shutdown after Republicans and Democrats failed to come to terms on accepting a funding bill.
Lawmakers are expected to vote on the same funding plan early Wednesday. In case they fail to restore the funding of the government, the USD could have a difficult time staging a rebound. Conversely, markets could breathe a sigh of relief and allow the USD to erase some of its losses if Democrats agree on a temporary seven-week funding of the government, with an aim to continue negotiations during that period.
In the second half of the day, the ADP Employment Change and the ISM Manufacturing Purchasing Managers' Index (PMI) data for September will be featured in the US economic calendar. With the uncertainty created by the US government shutdown, the impact of these data on the USD could be distorted. Nevertheless, a positive surprise in private sector payroll growth, or the PMI data, could be supportive for the USD with the immediate reaction.
In the meantime, US stock index futures are down between 0.5% and 0.7% in the European session on Wednesday. A bearish action in Wall Street could help the USD find demand as a safe-haven and cap GBP/USD's upside.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds above 60 and GBP/USD trades slightly above the 20-day Simple Moving Average (SMAs), reflecting a bullish bias.
On the upside, 1.3490-1.3500 (100-day SMA, 20-day SMA, 200-period SMA) aligns as a key resistance area ahead of 1.3550 (Fibonacci 23.6% retracement of the latest uptrend) and 1.3600 (static level, round level). Looking south, support levels could be spotted at 1.3460 (50-day SMA) and 1.3410-1.3400 (Fibonacci 50% retracement, round level).
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.
