GBP/USD Forecast: Pound Sterling recovery attempts to remain as technical corrections
- GBP/USD extended its weekly decline to the 1.2250 area.
- Bank of England left the interest rate unchanged at 5.25% after the September meeting.
- The pair could find it difficult to stage a steady rebound in the near term.
GBP/USD closed the second consecutive day in negative territory on Thursday and extended its slide to the 1.2250 area early Friday. The pair's near-term technical outlook highlights oversold conditions but a convincing recovery could be hard to come by.
The Bank of England went against the market expectation of a 25 basis points rate hike and left the interest rate unchanged at 5.25% in a split vote. A majority of the Monetary Policy Committee cited the loosening labor market, soft August inflation data and falling business sentiment as validation to hold the rate steady, the BoE's policy statement showed.
According to Reuters' calculations, markets are currently pricing in a 75% probability that the BoE will keep the rate steady in November. BNP Paribas and UBS both came out with statements following the BoE event and said that they lowered terminal rate projections to 5.25% from 5.5%.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.23% | 1.23% | -0.45% | 0.05% | 0.29% | -0.86% | 0.98% | |
| EUR | -0.23% | 1.00% | -0.68% | -0.18% | 0.06% | -1.09% | 0.76% | |
| GBP | -1.26% | -1.03% | -1.72% | -1.21% | -0.99% | -2.11% | -0.28% | |
| CAD | 0.44% | 0.66% | 1.68% | 0.48% | 0.70% | -0.41% | 1.40% | |
| AUD | -0.03% | 0.18% | 1.20% | -0.47% | 0.22% | -0.90% | 0.93% | |
| JPY | -0.29% | -0.07% | 0.94% | -0.71% | -0.23% | -1.16% | 0.71% | |
| NZD | 0.85% | 1.09% | 2.08% | 0.41% | 0.89% | 1.12% | 1.83% | |
| CHF | -1.00% | -0.76% | 0.25% | -1.42% | -0.97% | -0.72% | -1.86% |
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).
Meanwhile, the data from the UK showed early Friday that Retail Sales rose 0.4% on a monthly basis in August following the 1.1% decrease recorded in July. Additionally, S&P Global/CIPS Composite PMI declined to 46.8 in August from 48.6 in July, highlighting an ongoing contraction in the private sector's activity.
Assessing the report's findings, “private sector businesses reported that output fell at the sharpest rate since March 2009, outside the lockdown years and inevitably job creation followed suit as headcounts reduced at the fastest level since October 2009," said Dr John Glen, CIPS Chief Economist. "Manufacturers experienced a rapid fall in pipelines of work as their backlogs shrunk at the fastest pace since February 2009."
The worsening UK economic outlook is likely to force the BoE to refrain from further tightening policy. Hence, the widening policy divergence between the Federal Reserve and the BoE could cause GBP/USD to stay in a downtrend.
GBP/USD Technical Analysis
GBP/USD dropped below the lower limit of the descending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart fell below 30, highlighting oversold conditions for the pair.
1.2240 (static level from March) aligns as immediate support for the pair. A four-hour close below that level could open the door for another leg lower toward 1.2200 (psychological level, static level) and 1.2140 (static level from January).
Looking north, GBP/USD needs to climb above 1.2260 (lower limit of the descending channel) and stabilize there to extend its correction. 1.2300 (mid-point of the descending channel) and 1.2330 (upper limit of the descending channel) could be seen as resistances in this scenario.
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.
