GBP/USD Forecast: Pound Sterling looks to extend correction
- GBP/USD stays below 1.2650 after posting small losses on Monday.
- Dovish BoE commentary makes it difficult for Pound Sterling to gather strength.
- The pair could extend its correction if it breaks below 1.2600.
GBP/USD turned south after advancing to a multi-month high at the weekly opening and closed marginally lower on Monday. The pair stays relatively quiet below 1.2650, while the technical outlook points to a loss of bullish momentum.
British Pound PRICE Last 7 days
The table below shows the percentage change of British Pound (GBP) against listed major currencies last 7 days. British Pound was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.13% | 0.05% | -1.29% | 0.53% | 0.35% | 0.24% | -0.48% | |
| EUR | -0.13% | -0.09% | -1.42% | 0.40% | 0.22% | 0.11% | -0.61% | |
| GBP | -0.05% | 0.09% | -1.32% | 0.49% | 0.31% | 0.19% | -0.53% | |
| JPY | 1.29% | 1.42% | 1.32% | 1.85% | 1.66% | 1.54% | 0.81% | |
| CAD | -0.53% | -0.40% | -0.49% | -1.85% | -0.19% | -0.29% | -1.01% | |
| AUD | -0.35% | -0.22% | -0.31% | -1.66% | 0.19% | -0.11% | -0.82% | |
| NZD | -0.24% | -0.11% | -0.19% | -1.54% | 0.29% | 0.11% | -0.71% | |
| CHF | 0.48% | 0.61% | 0.53% | -0.81% | 1.01% | 0.82% | 0.71% |
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 upbeat market mood made it difficult for the US Dollar (USD) to find demand early Monday and helped GBP/USD push higher. In the second half of the day, the negative shift seen in risk sentiment supported the USD and weighed on the pair.
Meanwhile, Bank of England (BoE) Monetary Policy Committee (MPC) external member Swati Dhingra, who voted in favor of a 50 basis points (bps) rate cut at the February meeting, said on Monday that the monetary policy restrictiveness is still at a high level. "If you can cut rates by 25 bps at a quarterly pace, you'll still be in restrictive territory all this year," she added.
On Tuesday, the US economic calendar will feature regional manufacturing surveys and the Conference Board's (CB) Consumer Confidence Index data for February. Additionally, US President Donald Trump is expected to sign executive orders later in the American session.
In case safe-haven flows dominate the action in the financial markets later in the day, the USD could hold its ground and cause GBP/USD to extend its correction. As of writing, US stock index futures were trading mixed, pointing to a cautious stance.
GBP/USD Technical Analysis
GBP/USD faces interim support at 1.2600 (static level, round level). If the pair drops below this level and confirms it as resistance, additional losses toward 1.2530 (100-period Simple Moving Average (SMA) on the 4-hour chart, Fibonacci 61.8% retracement of the latest downtrend) and 1.2500 (round level, static level) could be seen.
On the upside, resistances are located at 1.2650 (Fibonacci 78.6% retracement, 100-day SMA), 1.2700-1.2710 (round level, static level) and 1.2750 (static 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.
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.
