GBP/USD Forecast: Pound Sterling recovery could remain limited, eyes on US CPI
- GBP/USD trades in positive territory above 1.3200 on Tuesday.
- Annual CPI inflation in the US is forecast to hold steady at 2.4% in April.
- The pair faces key support area at 1.3160-1.3170.
GBP/USD gains traction and trades in positive territory above 1.3200 in the European session on Tuesday, as markets adopt a cautious stance ahead of the key April inflation 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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.21% | 0.67% | 1.11% | 0.61% | 0.08% | 0.54% | 0.77% | |
| EUR | -1.21% | -0.40% | 0.44% | -0.10% | -0.50% | -0.19% | 0.04% | |
| GBP | -0.67% | 0.40% | 1.04% | 0.30% | -0.09% | 0.14% | 0.45% | |
| JPY | -1.11% | -0.44% | -1.04% | -0.50% | -1.64% | -1.41% | -0.57% | |
| CAD | -0.61% | 0.10% | -0.30% | 0.50% | -0.26% | -0.08% | 0.15% | |
| AUD | -0.08% | 0.50% | 0.09% | 1.64% | 0.26% | 0.22% | 0.51% | |
| NZD | -0.54% | 0.19% | -0.14% | 1.41% | 0.08% | -0.22% | 0.20% | |
| CHF | -0.77% | -0.04% | -0.45% | 0.57% | -0.15% | -0.51% | -0.20% |
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).
GBP/USD turned south in the European morning on Monday as the US Dollar (USD) gathered strength against its rivals. Following the first round of official talks in Switzerland, the US and China reached an agreement to pause and lower reciprocal tariffs, easing fears over a deepening trade conflict and boosting the USD.
Early Tuesday, the data published by the UK's Office for National Statistics showed that the ILO Unemployment Rate ticked up to 4.5% in the three months to March from 4.4%. In this period, the Employment Change was up 112K, compared to 206K previously. These figures failed to trigger a noticeable market reaction.
In the American session on Tuesday, the US Bureau of Labor Statistics will publish the Consumer Price Index (CPI) data for April. Annual CPI inflation is forecast to remain unchanged at 2.4%. On a monthly basis, the CPI and the core CPI, which excludes volatile food and energy prices, are both seen rising by 0.3%. A significant upside surprise, with a reading of 0.5% or above, in the either monthly print could help the USD stay resilient and cap GBP/USD's upside. Conversely, a soft print could help the pair hold its ground.
Investors will also pay close attention to the action in Wall Street. In case major equity indexes in the US manage to build on Monday's gains, GBP/USD could find it difficult to extend its rebound.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart recovers but stays below 50, pointing to a loss of bearish momentum.
Initial resistance level could be seen at 1.3270 (50-period Simple Moving Average (SMA), Fibonacci 23.6% retracement of the latest uptrend) before 1.3300-1.3310 (round level, 100-period SMA). On the downside, a key support area seems to have formed at 1.3170-1.3160 (200-period SMA, Fibonacci 38.2% retracement) ahead of 1.3100 (50-day SMA) and 1.3070 (Fibonacci 50% retracement).
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.
