GBP/USD Forecast: Pound Sterling remains below key technical resistance levels
- GBP/USD rebounds toward 1.3500 to start the new week.
- The technical outlook suggests that the bearish bias remains intact in the near term.
- Markets will pay close attention to comments from Fed officials.
After touching its highest level since early July above 1.3720 last Wednesday, GBP/USD made a sharp U-turn and suffered large losses in the second half of the week to close in negative territory. The pair holds its ground early Monday and clings to small gains at around 1.3500.
Pound Sterling 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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.25% | 0.46% | 0.19% | -0.19% | 0.74% | 1.58% | -0.23% | |
| EUR | 0.25% | 0.74% | 0.38% | 0.06% | 1.03% | 1.81% | 0.00% | |
| GBP | -0.46% | -0.74% | -0.30% | -0.67% | 0.29% | 1.04% | -0.83% | |
| JPY | -0.19% | -0.38% | 0.30% | -0.41% | 0.60% | 1.37% | -0.42% | |
| CAD | 0.19% | -0.06% | 0.67% | 0.41% | 1.04% | 1.72% | -0.16% | |
| AUD | -0.74% | -1.03% | -0.29% | -0.60% | -1.04% | 0.75% | -1.06% | |
| NZD | -1.58% | -1.81% | -1.04% | -1.37% | -1.72% | -0.75% | -1.85% | |
| CHF | 0.23% | -0.01% | 0.83% | 0.42% | 0.16% | 1.06% | 1.85% |
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 Federal Reserve's (Fed) cautious tone on further policy easing supported the US Dollar (USD), while the Bank of England's (BoE) expected decision to maintain the status quo failed to help Pound Sterling find demand, causing GBP/USD to remain under bearish pressure.
In assessment of the market reaction to the BoE, "regarding future decisions, the policymakers did not reveal their hand, leading to no significant changes to interest rate expectations. In short, the decision was not a major game changer for the Pound," Commerzbank analysts said.
Later in the day, investors will pay close attention to comments from Fed officials. The CME FedWatch Tool shows that markets widely see the Fed opting for two more rate cuts in the remaining two policy meetings this year. Hence, a confirmation of such policy steps is unlikely to trigger a significant market reaction. In case policymakers hint that they might reassess the rate outlook if inflation data start reflecting the impact of tariffs, or if the labor market shows signs of recovery, the USD could outperform its rivals and cause GBP/USD to turn south.
On Tuesday, preliminary September Services and Manufacturing Purchasing Managers' Index (PMI) data from the UK and the US could offer key insights into the growth outlook of respective economies.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart remains below 40 after rebounding from oversold levels, suggesting that the bearish bias remains intact and GBP/USD's latest recovery is a technical correction rather than a reversal. Additionally, the pair remains below the 100-period and the 200-period Simple Moving Averages (SMAs).
On the downside, 1.3470 (Fibonacci 38.2% retracement of the latest uptrend), aligns as the first support level before 1.3410-1.3400 (Fibonacci 50% retracement, round level). Looking north, resistance could be seen at 1.3510 (200-period SMA), 1.3530 (100-period SMA) and 1.3550 (Fibonacci 23.6% 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.
