GBP/USD Forecast: Pound Sterling remains fragile despite recovering from multi-week lows
- GBP/USD trades in a tight channel above 1.2850 on Tuesday.
- The technical picture is yet to point to a buildup of recovery momentum.
- The pair could struggle to find direction ahead of the Fed and the BoE policy meetings.
GBP/USD touched its weakest level in nearly three weeks below 1.2810 on Monday but managed to retrace its decline to end the day flat. The pair holds relatively stable slightly above 1.2850 in the European session but the technical outlook is yet to point to an extended recovery.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.21% | 0.05% | 0.77% | 0.07% | -0.00% | -0.07% | 0.30% | |
| EUR | -0.21% | -0.19% | 0.55% | -0.12% | -0.17% | -0.30% | 0.11% | |
| GBP | -0.05% | 0.19% | 0.70% | 0.05% | 0.02% | -0.09% | 0.28% | |
| JPY | -0.77% | -0.55% | -0.70% | -0.72% | -0.74% | -0.83% | -0.44% | |
| CAD | -0.07% | 0.12% | -0.05% | 0.72% | -0.04% | -0.17% | 0.23% | |
| AUD | 0.00% | 0.17% | -0.02% | 0.74% | 0.04% | -0.09% | 0.25% | |
| NZD | 0.07% | 0.30% | 0.09% | 0.83% | 0.17% | 0.09% | 0.37% | |
| CHF | -0.30% | -0.11% | -0.28% | 0.44% | -0.23% | -0.25% | -0.37% |
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 started the new week on the back foot as the US Dollar (USD) benefited from the risk-averse atmosphere. Investors, however, seem to remain reluctant to commit to a directional move in the pair ahead of the Federal Reserve and the Bank of England's monetary policy announcements on Wednesday and Thursday, respectively.
Early Tuesday, the UK's FTSE 100 Index is down 0.3% while US stock index futures trade marginally higher, reflecting a cautious market stance.
In the second half of the day, Conference Board Consumer Confidence Index for July and JOLTS Job Openings data for June will be featured in the US economic calendar. Unless there is a significant divergence between the market expectation of 8.03 million and the actual print in the job openings data, GBP/USD is likely to stay in a consolidation phase. A significant decline in job openings, with a reading below 7.5 million, could weigh on the USD with the immediate reaction.
GBP/USD Technical Analysis
GBP/USD stays slightly below the descending trend line, currently located at 1.2860, and the Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 50, reflecting a lack of buyer interest.
On the downside, 1.2830 (Fibonacci 50% retracement of the latest uptrend) aligns as interim support before 1.2800-1.2790 (psychological level, 200-period SMA) and 1.2750 (static level).
In case GBP/USD clears 1.2860 and stabilizes above this level, 1.2880 (Fibonacci 38.2% retracement) could be seen as next resistance before 1.2900 (100-period SMA).
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.
