GBP/USD Forecast: Pound Sterling needs to clear 1.2700 to attract buyers
- GBP/USD rebounds from multi-week lows but stays below 1.2700.
- Pound Sterling could struggle to extend recovery unless risk mood improves.
- The economic calendar will not offer any high-tier data releases on Monday.
Following Thursday's sharp decline, GBP/USD stretched lower and touched its weakest level since mid-May near 1.2620 on Friday. After ending the week in negative territory, GBP/USD stages a correction and trades above 1.2650 on Monday.
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 weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.15% | 0.16% | 1.31% | -0.47% | -0.47% | 0.14% | 0.25% | |
| EUR | 0.15% | 0.34% | 1.50% | -0.32% | -0.40% | 0.34% | 0.41% | |
| GBP | -0.16% | -0.34% | 1.23% | -0.66% | -0.76% | -0.04% | 0.09% | |
| JPY | -1.31% | -1.50% | -1.23% | -1.66% | -1.76% | -1.01% | -0.99% | |
| CAD | 0.47% | 0.32% | 0.66% | 1.66% | -0.06% | 0.62% | 0.75% | |
| AUD | 0.47% | 0.40% | 0.76% | 1.76% | 0.06% | 0.80% | 0.86% | |
| NZD | -0.14% | -0.34% | 0.04% | 1.01% | -0.62% | -0.80% | 0.13% | |
| CHF | -0.25% | -0.41% | -0.09% | 0.99% | -0.75% | -0.86% | -0.13% |
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) gathered strength heading into the weekend after the preliminary S&P Global Manufacturing and Services PMI for June showed that the business activity in the US private sector continued to expand at a robust pace.
Early Monday, the USD stays under modest bearish pressure amid improving risk mood and helps GBP/USD hold its ground.
The US economic docket will feature the Chicago Fed National Activity Index and the Dallas Fed Manufacturing Business Index. These data, however, unlikely to trigger a noticeable market reaction. Hence, investors are likely to remain focused on risk perception.
At the time of press, Dow Futures were up 0.3%, while Nasdaq Futures were down 0.1% A mixed action in Wall Street could make it difficult for GBP/USD to continue to stretch higher.
GBP/USD Technical Analysis
GBP/USD fell below the 100-day Simple Moving Average, currently located at 1.2640, on Friday but closed the week above this level, reflecting sellers' hesitancy. Additionally, the Relative Strength Index (RSI) indicator on the 4-hour chart recovered toward 50.
On the upside, the 200-period SMA on the 4-hour chart aligns as immediate resistance at 1.2700 ahead of 1.2720-1.2730 (Fibonacci 23.6% retracement of the latest uptrend, 100-period SMA) and 1.2800 (psychological level, static level).
In case GBP/USD falls below 1.2640 and starts using that level as resistance, 1.2600 (psychological level, static level) and 1.2580 (Fibonacci 50% retracement) could be seen as next bearish targets.
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.
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.
