GBP/USD Forecast: Pound Sterling remains fragile ahead of US data
- GBP/USD struggles to rebound from the monthly low it set on Friday.
- The near-term technical outlook suggests that the bearish bias stays intact.
- The US economic calendar will feature S&P Global PMI data.
GBP/USD lost 0.5% on Thursday and continued to push lower in the early European session on Friday. After touching its lowest level since mid-May at 1.2630, GBP/USD edged higher to the 1.2650 area but the technical outlook doesn't highlight a buildup of recovery momentum.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.09% | 0.25% | 0.94% | -0.36% | -0.50% | 0.13% | 0.18% | |
| EUR | -0.09% | 0.18% | 0.90% | -0.44% | -0.68% | 0.08% | 0.09% | |
| GBP | -0.25% | -0.18% | 0.78% | -0.63% | -0.88% | -0.15% | -0.07% | |
| JPY | -0.94% | -0.90% | -0.78% | -1.18% | -1.42% | -0.67% | -0.70% | |
| CAD | 0.36% | 0.44% | 0.63% | 1.18% | -0.20% | 0.49% | 0.56% | |
| AUD | 0.50% | 0.68% | 0.88% | 1.42% | 0.20% | 0.82% | 0.81% | |
| NZD | -0.13% | -0.08% | 0.15% | 0.67% | -0.49% | -0.82% | 0.06% | |
| CHF | -0.18% | -0.09% | 0.07% | 0.70% | -0.56% | -0.81% | -0.06% |
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 Bank of England (BoE) announced on Thursday that it left the monetary policy settings unchanged. "June decision was finely balanced as higher-than-expected services inflation reflected factors that would not push up medium-term inflation," the BoE said in its press release. The BoE's optimistic tone on inflation outlook caused Pound Sterling to weaken against its major rivals.
Analysts ING think that the BoE is likely to lower the policy rate in August. "The probability of an August rate cut has inched up from 40% to 60% in the minutes since," they said. "The fact that there wasn't a larger repricing is probably because the Bank didn't change its forward guidance. And for us, August rate cut is our base case."
Early Friday, the UK's Office for National Statistics reported that Retail Sales rose 2.9% on a monthly basis in May. This reading surpassed the market expectation for an increase of 1.5% and helped Pound Sterling show some resilience. Other data from the UK showed that the S&P Global/CIPS Composite PMI declined to 51.7 in June's flash estimate from 53 in May, limiting GBP/USD's rebound.
Ahead of the weekend, S&P Global PMI data from the US will be looked upon for fresh impetus. In case PMI surveys point to an ongoing expansion in the private sector at a healthy pace, with a Composite PMI reading of 52.0 or higher, the USD could gather strength heading into the weekend and weigh on GBP/USD.
GBP/USD Technical Analysis
GBP/USD dropped below the lower limit of the ascending regression channel and the Relative Strength Index (RSI) indicator on the daily chart fell below 40, reflecting the bearish tilt in the short-term outlook.
On the downside, 1.2640 (100-day Simple Moving Average (SMA), Fibonacci 38.2% retracement of the latest uptrend) aligns as key support level. If GBP/USD falls below that level and starts using it as resistance, an extended slide toward 1.2600 (psychological level, static level) and 1.2580 (Fibonacci 50% retracement) could be seen.
The 200-period SMA and the lower limit of the ascending channel forms stiff resistance at 1.2700 before 1.2740 (100-period SMA), 1.2800 (psychological level, static level).
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.
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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.
