GBP/USD Forecast: Pound Sterling looks to extend recovery as key support holds
- GBP/USD clings to small daily gains near 1.2650 in the early European session.
- The pair reversed its direction after testing the 200-day SMA at 1.2600.
- Next resistance for the pair is located at 1.2670-1.2680.
After testing 1.2600 at the beginning of the week, GBP/USD reversed its direction and closed in positive territory on Monday. The pair clings to small gains near 1.2650 in the early European morning on Tuesday.
In the absence of high-tier data releases and fundamental drivers, the US Dollar (USD) struggled to build on the previous week's gains. After rising nearly 1% in a two-day span ahead of the weekend, the USD Index lost 0.2% on Monday.
Early Tuesday, the modest improvement seen in risk mood makes it difficult for the USD to regain its traction. At the time of press, US stock index futures were up between 0.15% and 0.5%. A risk-positive market atmosphere could put additional weight on the USD's shoulders in the second half of the day.
Pound Sterling price this week
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.30% | -0.39% | -0.17% | -0.37% | -0.01% | -0.41% | 0.46% | |
| EUR | 0.31% | -0.06% | 0.14% | -0.02% | 0.29% | -0.05% | 0.76% | |
| GBP | 0.38% | 0.10% | 0.22% | 0.07% | 0.37% | 0.03% | 0.83% | |
| CAD | 0.16% | -0.14% | -0.22% | -0.19% | 0.15% | -0.19% | 0.61% | |
| AUD | 0.34% | 0.03% | -0.05% | 0.17% | 0.31% | -0.07% | 0.79% | |
| JPY | 0.01% | -0.28% | -0.27% | -0.14% | -0.33% | -0.38% | 0.48% | |
| NZD | 0.32% | 0.10% | 0.02% | 0.24% | 0.04% | 0.38% | 0.84% | |
| CHF | -0.44% | -0.75% | -0.83% | -0.60% | -0.79% | -0.45% | -0.76% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The US economic docket will feature Durable Goods Orders for February, which is forecast to rise by 1.3% following the 6.2% contraction recorded in January. A negative print could hurt the USD with the immediate reaction. On the other hand, a stronger-than-expected increase could support the currency. The impact of this data, however, is likely to remain short-lived.
Later in the day, the Conference Board will release the Consumer Confidence data for March. In February, the Consumer Confidence Index declined to a three-month low of 106.7. A rebound in March could help the USD show some resilience against its rivals.
GBP/USD Technical Analysis
GBP/USD tested the 200-day Simple Moving Average (SMA) three times since November and it managed to stage a decisive rebound each time. On Monday, the pair started to edge higher after touching the 200-day SMA at 1.2600. Additionally, GBP/USD climbed above the 100-day SMA at 1.2630 and the Relative Strength Index (RSI) indicator on the 4-hour chart rose toward 50, highlighting sellers' reluctance.
On the upside, key resistance area seems to have formed at 1.2670-1.2680 (Fibonacci 61.8% retracement of the latest uptrend, 200-period SMA on the 4-hour chart, 50-day SMA) ahead of 1.2710 (Fibonacci 50% retracement) and 1.2750 (Fibonacci 38.2% retracement).
First support is located at 1.2630 (100-day SMA) before 1.2600 (200-day SMA).
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, aka ‘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.
