GBP/USD Forecast: Pound Sterling remains fragile despite recent rebound
- GBP/USD trades in positive territory above 1.3150 early Friday.
- The technical outlook suggests that the recent rebound is a technical correction.
- Investors await September Nonfarm Payrolls data from the US.
After losing more than 1% on Thursday, GBP/USD stages a rebound and trades in positive territory above 1.3150 in the European session on Friday. The pair's technical picture highlights that the bearish bias remains intact as market focus shifts to the US labor market data.
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 | 1.22% | 1.56% | 2.91% | 0.31% | 0.85% | 2.09% | 1.26% | |
| EUR | -1.22% | 0.34% | 1.68% | -0.87% | -0.31% | 0.90% | 0.12% | |
| GBP | -1.56% | -0.34% | 1.47% | -1.21% | -0.65% | 0.55% | -0.22% | |
| JPY | -2.91% | -1.68% | -1.47% | -2.46% | -2.05% | -0.75% | -1.54% | |
| CAD | -0.31% | 0.87% | 1.21% | 2.46% | 0.59% | 1.78% | 1.00% | |
| AUD | -0.85% | 0.31% | 0.65% | 2.05% | -0.59% | 1.21% | 0.42% | |
| NZD | -2.09% | -0.90% | -0.55% | 0.75% | -1.78% | -1.21% | -0.79% | |
| CHF | -1.26% | -0.12% | 0.22% | 1.54% | -1.00% | -0.42% | 0.79% |
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).
Dovish comments from Bank of England (BoE) Governor Andrew Bailey triggered a Pound Sterling selloff early Thursday. In the second half of the day, the US Dollar (USD) preserved its strength and didn't allow GBP/USD to stage a rebound after the September ISM Services PMI came in at 54.9, surpassing the market expectation of 51.7.
In the European morning on Friday, BoE Chief Economist Huw Pill adopted a more cautious tone regarding further policy easing and helped Pound Sterling find support. "Further cuts in the bank rate remain in prospect but it will be important to guard against the risk of cutting rates either too far or too fast," Pill said.
Later in the session, the US Bureau of Labor Statistics will publish employment figures for September. Nonfarm Payrolls (NFP) are forecast to rise by 140,000 and the Unemployment Rate is expected to stay unchanged at 4.2%.
A stronger-than-forecast growth in NFP could make it difficult for GBP/USD to extend its recovery in the second half of the day. On the flip side, a disappointing reading could have the opposite impact on the pair's action, opening the door for another leg higher heading into the weekend.
GBP/USD Technical Analysis
The Relative Strength Index stays below 50 after rebounding from below-20, suggesting that GBP/USD is in a correction phase rather than in the beginning of a reversal. On the upside, the 200-period Simple Moving Average (SMA) aligns as first resistance at 1.3200 before 1.3225 (Fibonacci 50% retracement of the latest uptrend) and 1.3260 (100-period SMA).
Looking south, first support could be spotted at 1.3100 (Fibonacci 78.6% retracement) ahead of 1.3050 (static level) and 1.3000 (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, 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.
