GBP/USD Forecast: Pound Sterling needs to clear 1.2890-1.2900 to extend recovery
- GBP/USD fluctuates above 1.2850 in the European session on Friday.
- The pair could face stiff resistance at 1.2890-1.2900.
- The BEA will release PCE Price Index figures for June later in the day.
Following a short-lasting recovery attempt during the European trading hours on Thursday, GBP/USD turned south and registered its lowest daily close in two weeks at 1.2850. The pair clings to modest gains early Friday as investors await Personal Consumption Expenditures (PCE) Price Index data from the US.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.29% | 0.36% | -1.97% | 0.69% | 1.88% | 1.96% | -0.46% | |
| EUR | -0.29% | 0.06% | -2.31% | 0.36% | 1.63% | 1.61% | -0.81% | |
| GBP | -0.36% | -0.06% | -2.46% | 0.28% | 1.58% | 1.53% | -0.89% | |
| JPY | 1.97% | 2.31% | 2.46% | 2.76% | 4.01% | 3.98% | 1.48% | |
| CAD | -0.69% | -0.36% | -0.28% | -2.76% | 1.28% | 1.26% | -1.16% | |
| AUD | -1.88% | -1.63% | -1.58% | -4.01% | -1.28% | -0.01% | -2.43% | |
| NZD | -1.96% | -1.61% | -1.53% | -3.98% | -1.26% | 0.01% | -2.35% | |
| CHF | 0.46% | 0.81% | 0.89% | -1.48% | 1.16% | 2.43% | 2.35% |
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 Bureau of Economic Analysis (BEA) reported in its first estimate that the United States' Gross Domestic Product (GDP) grew at an annual rate of 2.8% in the second quarter. This reading followed the 1.4% growth recorded in the previous quarter and beat analysts' estimate for an expansion of 2%. As a result, the US Dollar (USD) held resilient against its major rivals and didn't allow GBP/USD to gain traction.
The BEA will publish the Personal Consumption Expenditures (PCE) Price Index data for June later in the day. On a monthly basis, the PCE Price Index is forecast to rise 0.1% in June. The core PCE Price Index, the Federal Reserve's (Fed) preferred gauge of inflation, is also seen rising 0.1%. The PCE inflation data is unlikely to offer any surprises or trigger a market reaction, given the fact that the GDP report showed on Thursday the core PCE Price Index rose 2.9% on a quarterly basis, below the 3.7% increase registered in the first quarter but above analysts' estimate of 2.7%.
Instead, investors could react to changes in risk perception. Early Friday, the UK's FTSE 100 Index is up nearly 1% on the day and US stock index futures rise between 0.5% and 1%. If risk flows dominate the action in financial markets ahead of the weekend, the USD could have a hard time finding demand and pave the way for a rebound in GBP/USD.
GBP/USD Technical Analysis
GBP/USD could face immediate resistance at 1.2890-1.2900, where the 100-period Simple Moving Average (SMA) on the 4-hour chart and the descending trend line meet. In case the pair manages to flip that area into support, it could extend its recovery toward 1.2930-1.2940 (Fibonacci 23.6% retracement, 50-period SMA) and 1.3000 (psychological level, static level).
On the downside, supports are located at 1.2830 (Fibonacci 50% retracement) and 1.2800-1.2790 (psychological level, 200-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, 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.
