GBP/USD Forecast: Pound Sterling looks to stretch higher on improving risk mood
- GBP/USD trades comfortably above 1.3500 in the European session.
- The risk-positive market atmosphere could help the pair edge higher.
- Markets will keep a close eye on fresh developments surrounding the US trade negotiations.
GBP/USD stays in a consolidation phase above 1.3500 after posting gains on Monday and Tuesday. The improving risk sentiment and the technical outlook suggests that the pair could stretch higher in the near term.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.83% | -0.88% | -1.17% | -0.97% | -1.15% | -1.18% | -1.03% | |
| EUR | 0.83% | 0.02% | -0.34% | -0.16% | -0.35% | -0.54% | -0.24% | |
| GBP | 0.88% | -0.02% | -0.55% | -0.14% | -0.34% | -0.34% | -0.07% | |
| JPY | 1.17% | 0.34% | 0.55% | 0.21% | 0.07% | -0.06% | 0.32% | |
| CAD | 0.97% | 0.16% | 0.14% | -0.21% | -0.11% | -0.21% | -0.10% | |
| AUD | 1.15% | 0.35% | 0.34% | -0.07% | 0.11% | -0.10% | 0.25% | |
| NZD | 1.18% | 0.54% | 0.34% | 0.06% | 0.21% | 0.10% | 0.28% | |
| CHF | 1.03% | 0.24% | 0.07% | -0.32% | 0.10% | -0.25% | -0.28% |
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 US Dollar (USD) remained under selling pressure on Tuesday and allowed GBP/USD to build on Monday's gains. The uncertainty regarding the United States' trade relations with major partners and the deepening feud between US President Donald Trump and Federal Reserve (Fed) Chairman Jerome Powell made it difficult for the USD to find demand.
In the early trading hours of the Asian session on Wednesday, Trump announced that they have completed a "massive deal" with Japan, explaining that Japan will invest $550 billion into the US and pay 15% reciprocal tariffs, down from 25%, to the US. This development triggered a risk rally midweek but the USD managed to keep its footing, with investors seeing the US-Japan trade agreement as a sign of more deals to come.
Reflecting the upbeat market mood, US stock index futures gain between 0.2% and 0.5%, while the UK's FTSE 100 Index rises about 0.6%. In case risk flows continue to dominate the action in financial markets in the second half of the day, the USD could have a hard time gathering recovery momentum.
Existing Home Sales data for June, which is unlikely to trigger a significant market reaction, will be the only data featured in the US economic calendar.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 70, suggesting that GBP/USD has more room on the upside before turning technically overbought.
In case GBP/USD clears the 1.3540-1.3550 resistance area, where the 200-period Simple Moving Average (SMA), 100-period SMA and Fibonacci 38.2% retracement level of the latest uptrend are located, technical buyers could take action. In this scenario, 1.3600 (static level, round level) and 1.3630 (Fibonacci 23.6% retracement) could be seen as next resistance levels.
Looking south, support levels could be spotted at 1.3500 (static level, round level), 1.3470 (Fibonacci 50% retracement) and 1.3450 (50-period 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, 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.
