GBP/USD Forecast: Pound Sterling retreats but clings to bullish stance
- GBP/USD consolidates Friday's gains near 1.3500 to start the new week.
- The technical outlook suggests that the bullish bias remains unchanged but loses momentum.
- The US Dollar could have a difficult time gathering strength.
Following a four-day decline, GBP/USD made a sharp U-turn on Friday and gained more than 0.8%. The pair stays in a consolidation phase at around 1.3500 in the European session on Monday.
Pound Sterling 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 strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | 0.42% | 0.06% | 0.10% | 0.27% | 1.03% | -0.42% | |
| EUR | -0.11% | 0.30% | -0.07% | -0.03% | 0.16% | 0.88% | -0.53% | |
| GBP | -0.42% | -0.30% | -0.46% | -0.32% | -0.14% | 0.58% | -0.87% | |
| JPY | -0.06% | 0.07% | 0.46% | 0.06% | 0.23% | 1.00% | -0.47% | |
| CAD | -0.10% | 0.03% | 0.32% | -0.06% | 0.15% | 0.93% | -0.56% | |
| AUD | -0.27% | -0.16% | 0.14% | -0.23% | -0.15% | 0.72% | -0.74% | |
| NZD | -1.03% | -0.88% | -0.58% | -1.00% | -0.93% | -0.72% | -1.47% | |
| CHF | 0.42% | 0.53% | 0.87% | 0.47% | 0.56% | 0.74% | 1.47% |
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).
Following Federal Reserve (Fed) Chairman Jerome Powell's speech on “Economic Outlook and Framework Review” at the annual Jackson Hole Economic Symposium on Friday, the US Dollar weakened against its rivals and allowed GBP/USD to gather bullish momentum.
Powell announced that they will adopt a new policy framework of flexible inflation targeting and eliminate 'makeup' strategy for inflation. Regarding the policy outlook, he noted that downside risks to the labor market were rising and said that it might be reasonable to expect that inflation effects of tariffs will be short-lived.
Following these comments, the probability of a 25 basis points Fed rate cut in September jumped to near 90%, from about 75% before Powell's speech, as per CME FedWatch Tool.
Financial markets in the UK are closed in observance of the Summer Bank Holiday on Monday. Later in the session, the US economic calendar will not offer any high-impact macroeconomic data releases. Hence, investors could react to changes in risk perception.
At the time of press, US stock index futures were down between 0.2% and 0.25%. In case Wall Street's main indexes stage a deep correction following Friday's risk rally, the USD could its ground and cause GBP/USD to stretch lower. Nevertheless, investors could refrain from a steady recovery in the USD after Powell's dovish signals.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 50, reflecting a loss of bullish momentum. However, GBP/USD continues to trade comfortably above the 100-period and the 200-period Simple Moving Averages (SMAs).
On the upside, 1.3540 (Fibonacci 61.8% retracement of the latest downtrend), aligns as the first resistance level ahead of 1.3600 (static level, round level) and 1.3640 (Fibonacci 78.6% retracement). Looking south, support levels could be seen at 1.3460 (Fibonacci 50% retracement), 1.3445-1.3435 (100-period SMA, 200-period SMA) and 1.3400-1.3390 (static level, Fibonacci 38.2% 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.
