GBP/USD Forecast: Pound Sterling loses bullish momentum on escalating geopolitical tensions
- GBP/USD trades deep in negative territory slightly below 1.3550 on Friday.
- Safe-haven flows dominate the action in financial markets.
- The pair's near-term technical outlook highlights a loss of bullish momentum.
GBP/USD declines sharply and trades below 1.3550 in the European session on Friday after posting its highest daily close since February 2022 on Thursday. The risk-averse market environment could make it difficult for the pair to regain its traction heading into the weekend.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.57% | 0.43% | 0.42% | 0.14% | 0.81% | 1.06% | 0.41% | |
| EUR | -0.57% | -0.10% | -0.10% | -0.37% | 0.33% | 0.46% | -0.16% | |
| GBP | -0.43% | 0.10% | -0.06% | -0.35% | 0.34% | 0.55% | -0.04% | |
| JPY | -0.42% | 0.10% | 0.06% | -0.27% | 0.39% | 0.62% | -0.01% | |
| CAD | -0.14% | 0.37% | 0.35% | 0.27% | 0.65% | 0.94% | 0.31% | |
| AUD | -0.81% | -0.33% | -0.34% | -0.39% | -0.65% | 0.23% | -0.38% | |
| NZD | -1.06% | -0.46% | -0.55% | -0.62% | -0.94% | -0.23% | -0.60% | |
| CHF | -0.41% | 0.16% | 0.04% | 0.00% | -0.31% | 0.38% | 0.60% |
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) allowed GBP/USD to gather bullish momentum on Thursday. After suffering large losses against its major rivals on weaker-than-expected Consumer Price Index (CPI) figures on Wednesday, the USD continued to weaken on Thursday as the data published by the Department of Labor showed that there were 248,000 Initial Jobless Claims in the week ending June 7, compared to the market forecast of 240,000.
Early Friday, safe-haven flows started to dominate the action in financial markets after Israel's Prime Minister Benjamin Netanyahu announced that they have launched "Operation Rising Lion," targeting Iran's nuclear infrastructure, ballistic missile factories and its military capabilities. In response, Iran's Armed Forces General staff said that Israel and the US will "pay a very heavy price."
The USD seems to be benefiting from the flight to safety, causing GBP/USD to push lower. The US economic calendar will feature the University of Michigan's preliminary Consumer Sentiment Index for June. Investors are likely to pay little to no attention to this data and remain focused on the developments surrounding the Israel-Iran conflict. Unless there is a de-escalation, market participants could stay away from risk-sensitive assets.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 50 and GBP/USD trades near the 20-period and the 50-period Simple Moving Averages (SMA), reflecting the loss of bullish momentum.
On the downside, the 100-period SMA forms the immediate support level at 1.3520 before 1.3460 (static level) and 1.3420 (200-period SMA). Looking north, resistance levels could be spotted at 1.3600 (mid-point of the ascending channel), 1.3630 (static level) and 1.3700 (static level, 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.
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.
