GBP/USD Forecast: Pound Sterling remains fragile to start new week
- GBP/USD trades on the back foot below 1.2400 on Monday.
- Pound Sterling struggles to benefit from improving risk mood.
- PMI data from the UK and the US on Tuesday could trigger the next big action.
GBP/USD came under bearish pressure during the American trading hours on Friday and broke below 1.2400, closing the week in negative territory. The pair holds steady above 1.2350 early Monday but struggles to gather recovery momentum despite the positive shift seen in market mood.
Bank of England (BoE) Deputy Governor Dave Ramsden said on Friday that risks to persistence in domestic inflation pressures were receding. When asked about the Federal Reserve's rate outlook, Ramsden said some of the fundamentals of US growth dynamics were different from the UK's and noted that they will do what makes sense in terms of their own mandate.
These comments could suggest that the BoE is unlikely to delay a policy pivot even if the Fed opts to leave the policy rate unchanged in June.
Pound Sterling price in the last 7 days
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies in the last 7 days. Pound Sterling was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.13% | 0.75% | -0.25% | 0.61% | 0.91% | 0.62% | -0.38% | |
| EUR | 0.13% | 0.88% | -0.11% | 0.74% | 1.05% | 0.76% | -0.24% | |
| GBP | -0.77% | -0.89% | -1.01% | -0.15% | 0.16% | -0.14% | -1.16% | |
| CAD | 0.25% | 0.12% | 0.98% | 0.85% | 1.15% | 0.87% | -0.15% | |
| AUD | -0.61% | -0.74% | 0.13% | -0.85% | 0.31% | 0.02% | -1.00% | |
| JPY | -0.90% | -1.04% | -0.14% | -1.17% | -0.31% | -0.27% | -1.31% | |
| NZD | -0.62% | -0.77% | 0.10% | -0.86% | -0.02% | 0.29% | -1.03% | |
| CHF | 0.37% | 0.24% | 1.12% | 0.12% | 0.97% | 1.28% | 0.99% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The economic calendar will not offer any high-tier data releases on Monday. Preliminary Services and Manufacturing PMI data for April, both from the UK and the US, will be watched closely by market participants on Tuesday.
Meanwhile, the UK's FTSE 100 is up more than 1% on the day and US stock index futures trade in positive territory. In case risk flows continue to dominate the financial markets in the second half of the day, GBP/USD could find support.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 30, suggesting that investors could refrain from betting on an extended decline before GBP/USD makes a technical correction.
1.2350 (static level) aligns as immediate support for GBP/USD before 1.2330 (lower limit of the descending channel) and 1.2300 (psychological level, static level). On the upside, 1.2400 (psychological level, static level) could be seen as first resistance before 1.2440 (20-period Simple Moving Average (SMA) on the 4-hour chart, mid-point of the descending channel) and 1.2470 (50-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.
