GBP/USD Forecast: Pound Sterling retreats below key technical level ahead of Powell
- GBP/USD made a sharp U-turn after rising above 1.2700 on Monday.
- Technical sellers could remain interested in case GBP/USD fails to reclaim 1.2640.
- Fed Chairman Powell will speak on the policy outlook at the ECB Forum.
GBP/USD spike above 1.2700 and touched its highest level since June 20 in the American session on Monday. The pair lost its traction later in the day and closed virtually unchanged at 1.2650. The pair stays on the back foot on Tuesday and trades below the key technical level at 1.2640.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.21% | 0.09% | 0.11% | -0.05% | 0.10% | 0.34% | 0.15% | |
| EUR | -0.21% | -0.12% | -0.09% | -0.26% | -0.11% | 0.10% | -0.06% | |
| GBP | -0.09% | 0.12% | 0.04% | -0.14% | -0.02% | 0.23% | 0.04% | |
| JPY | -0.11% | 0.09% | -0.04% | -0.18% | -0.01% | 0.19% | 0.01% | |
| CAD | 0.05% | 0.26% | 0.14% | 0.18% | 0.15% | 0.39% | 0.17% | |
| AUD | -0.10% | 0.11% | 0.02% | 0.00% | -0.15% | 0.23% | 0.04% | |
| NZD | -0.34% | -0.10% | -0.23% | -0.19% | -0.39% | -0.23% | -0.19% | |
| CHF | -0.15% | 0.06% | -0.04% | -0.01% | -0.17% | -0.04% | 0.19% |
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 sentiment helps the US Dollar (USD) find demand on Tuesday and doesn't allow GBP/USD to stage a rebound. Reflecting the souring mood, US stock index futures are down between 0.3% and 0.5%.
In the second half of the day, Federal Reserve (Fed) Chairman Jerome Powell will speak on the policy outlook at the ECB Forum on Central Banking.
Markets currently price in a nearly 35% probability of the Fed leaving the policy rate unchanged in September, according to the CME FedWatch Tool. In case Powell acknowledges improving inflation outlook following last Friday's Personal Consumption Expenditures (PCE) Price Index, the USD could have a hard time finding demand. On the other hand, the market positioning suggests that there is room for further USD strength if Powell pushes back against the market expectation for a rate reduction in September.
GBP/USD Technical Analysis
The 100-day and the 50-day Simple Moving Averages form a strong technical area at 1.2640. If this level stays intact, sellers could remain interested. On the downside, 1.2600 (psychological level, static level) could be seen as interim support before 1.2580 (Fibonacci 50% retracement of the latest uptrend) and 1.2520 (Fibonacci 61.8% retracement).
1.2640 aligns as first resistance. A daily close above this level could attract technical buyers. 1.2700 (20-day SMA, psychological level) and 1.2720 (Fibonacci 23.6% retracement) could be seen as next resistance levels.
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.
