GBP/USD Forecast: Pound Sterling rebounds but bearish bias remains intact
- GBP/USD recovered above 1.2550 after suffering large losses on Wednesday.
- The near-term technical outlook suggests that the bearish bias stays intact.
- The pair could face strong resistance at 1.2590.
GBP/USD came under heavy bearish pressure and touched its lowest level in two months at 1.2520 during the American trading hours on Wednesday. The pair stays in positive territory above 1.2550 early Thursday but the technical outlook doesn't yet point to a build up of recovery momentum.
The US Dollar (USD) outperformed its rivals in the second half of the day as investors reacted to the US inflation data for March, triggering a sharp decline in GBP/USD.
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 US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.75% | 0.51% | 0.55% | 0.69% | 0.99% | 0.26% | 1.10% | |
| EUR | -0.77% | -0.25% | -0.22% | -0.07% | 0.22% | -0.50% | 0.35% | |
| GBP | -0.55% | 0.21% | 0.01% | 0.15% | 0.45% | -0.28% | 0.56% | |
| CAD | -0.56% | 0.21% | -0.04% | 0.15% | 0.45% | -0.28% | 0.55% | |
| AUD | -0.70% | 0.07% | -0.18% | -0.15% | 0.31% | -0.43% | 0.39% | |
| JPY | -1.00% | -0.22% | -0.47% | -0.43% | -0.33% | -0.72% | 0.14% | |
| NZD | -0.28% | 0.46% | 0.23% | 0.27% | 0.41% | 0.71% | 0.81% | |
| CHF | -1.15% | -0.36% | -0.61% | -0.57% | -0.40% | -0.14% | -0.87% |
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 Bureau of Labor Statistics announced that the annual Consumer Price Index (CPI) rose 3.5%, at a stronger pace than the 3.2% increase recorded in February and the market expectation of 3.4%. Additionally, the core CPI inflation held steady at 3.8% on a yearly basis.
The probability of the Federal Reserve opting for another policy hold in June jumped above 80% after this data from 40% earlier in the day, the CME FedWatch Tool showed. In turn, the USD Index, which tracks the USD's valuation against a basket of six major currencies, advanced to a new 2024-high above 105.00.
Later in the day, the weekly Initial Jobless Claims and the Producer Price Index data for March will be featured in the US economic docket. These data are unlikely to change investors' mind about a further delay in the Fed policy pivot. Nevertheless, a soft producer inflation reading, coupled with a significant increase in the Initial Jobless Claims, could limit the USD's upside with the immediate reaction.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40 despite edging higher in the European session, suggesting that the latest recovery attempt is a technical correction rather than the beginning of a reversal. Additionally, GBP/USD closed well below the 200-day Simple Moving Average after holding above this level in the previous five trading days.
On the downside, interim support seems to have formed at 1.2530 before 1.2500 (static level) and 1.2450 (static level from November). 1.2590 (200-day SMA) aligns as strong resistance before 1.2650 (50-day SMA, 100-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.
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.
