GBP/USD Forecast: Pound Sterling sellers could hesitate if 1.2500 support holds
- GBP/USD trades marginally higher on the day above 1.2500 in the European morning.
- Sellers could stay on the sidelines in case 1.2500 support stays intact.
- Weekly Initial Jobless Claims data from the US will be looked upon for fresh impetus.
GBP/USD closed in the red on Monday and Tuesday, pressured by the broad-based US Dollar (USD) strength. Following the New Year break, the pair trades marginally higher on the day above 1.2500.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.54% | 0.40% | -0.69% | -0.09% | 0.17% | 0.32% | 0.32% | |
| EUR | -0.54% | -0.14% | -1.27% | -0.67% | -0.44% | -0.26% | -0.26% | |
| GBP | -0.40% | 0.14% | -1.12% | -0.53% | -0.30% | -0.13% | -0.12% | |
| JPY | 0.69% | 1.27% | 1.12% | 0.57% | 0.91% | 1.16% | 1.09% | |
| CAD | 0.09% | 0.67% | 0.53% | -0.57% | 0.26% | 0.47% | 0.41% | |
| AUD | -0.17% | 0.44% | 0.30% | -0.91% | -0.26% | 0.17% | 0.17% | |
| NZD | -0.32% | 0.26% | 0.13% | -1.16% | -0.47% | -0.17% | 0.00% | |
| CHF | -0.32% | 0.26% | 0.12% | -1.09% | -0.41% | -0.17% | -0.00% |
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).
Safe-haven flows dominated the action in financial markets toward the end of the year and helped the USD outperform its rivals. In the European morning on Thursday, US stock index futures rise between 0.5% and 0.7%, pointing to an improving risk mood.
The US Department of Labor will publish the weekly Initial Jobless Claims data, which is forecast to rise to 224,000 from 219,000. In case there is a bigger increase than expected, the USD could come under selling pressure with the immediate reaction.
Investors will also pay close attention to the risk perception in the second half of the day. A bullish opening in Wall Street, followed by a risk rally, could hurt the USD and allow GBP/USD to gather recovery momentum.
The UK economic calendar will not feature any high-tier data releases on Friday. Ahead of the weekend, the ISM will publish the US Manufacturing PMI data for December.
GBP/USD Technical Analysis
GBP/USD trades below the 20-period and the 50-period Simple Moving Averages (SMA) on the 4-hour chart, while fluctuating below the descending trend line coming from December 10. Although these technical signs suggest that the bearish bias remains intact, the Relative Strength Index (RSI) indicator recovers toward 50, reflecting a loss of momentum.
On the upside, 1.2540-1.2550 (20-period SMA, 50-period SMA) aligns as first resistance area before 1.2575 (descending trend line) and 1.2615 (100-period SMA). Looking south, supports could be spotted at 1.2500 (round level, psychological level), 1.2440 (static level) and 1.2400 (static level, round 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.
