GBP/USD Forecast: Pound Sterling remains fragile as markets turn cautious
- GBP/USD trades in a narrow channel below 1.3100 in the European session on Tuesday.
- The pair's near-term technical outlook suggests that the bearish bias remains intact.
- The US economic calendar will not offer any high-impact data releases.
After closing in negative territory on Monday, GBP/USD staged a modest recovery early Tuesday but lost its traction after meeting resistance near 1.3100. The pair's technical outlook suggests that sellers look to retain control in the near term.
British Pound 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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.29% | 2.11% | 2.90% | 0.85% | 2.73% | 3.68% | 1.04% | |
| EUR | -1.29% | 0.80% | 1.58% | -0.43% | 1.42% | 2.35% | -0.27% | |
| GBP | -2.11% | -0.80% | 0.77% | -1.23% | 0.60% | 1.55% | -1.05% | |
| JPY | -2.90% | -1.58% | -0.77% | -1.97% | -0.14% | 0.77% | -1.79% | |
| CAD | -0.85% | 0.43% | 1.23% | 1.97% | 1.86% | 2.80% | 0.19% | |
| AUD | -2.73% | -1.42% | -0.60% | 0.14% | -1.86% | 0.92% | -1.67% | |
| NZD | -3.68% | -2.35% | -1.55% | -0.77% | -2.80% | -0.92% | -2.54% | |
| CHF | -1.04% | 0.27% | 1.05% | 1.79% | -0.19% | 1.67% | 2.54% |
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 negative shift seen in risk mood at the start of the week caused GBP/USD to edge lower. Early Tuesday, investors adopt a cautious stance amid growing concerns over an economic downturn in China.
The National Development and Reform Commission (NDRC), China’s state planner, said on Tuesday that the downward pressure on China's economy is increasing, adding that they are facing more complex internal and external environments.
Reflecting the souring mood, the UK's FTSE 100 Index is down more than 1% on the day. Meanwhile, US stock index futures trade virtually unchanged.
In case the market atmosphere remains risk-averse in the second half of the day, GBP/USD could come under renewed bearish pressure. NFIB Business Optimism Index for September and RealClearMarkets/TIPP Economic Optimism Index data for October will be featured in the US economic docket on Tuesday, which are unlikely to trigger a noticeable market reaction.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40, suggesting that sellers look to retain control. Interim support seems to have formed at 1.3070 before 1.3050 (static level) and 1.3000 (round level, static level).
If GBP/USD manages to rise above 1.3100 (Fibonacci 78.6% retracement level of the latest uptrend) and starts using this level as support, sellers could be discouraged. In this scenario, next resistance could be spotted at 1.3170 (Fibonacci 61.8% 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.
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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.
