GBP/USD Forecast: Pound Sterling sellers take action as mood sours
- GBP/USD declines toward 1.2900 after posting large losses on Thursday.
- Safe-haven flows dominate financial markets in the European session on Friday.
- The near-term technical outlook points to a buildup of bearish momentum.
After closing in negative territory on Thursday, GBP/USD stays under bearish pressure and falls toward 1.2900 in the European session on Friday, as the US Dollar (USD) benefits from the negative shift seen in risk sentiment.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.22% | 0.59% | -0.49% | 0.53% | 1.40% | 1.40% | -0.58% | |
| EUR | -0.22% | 0.40% | -0.51% | 0.50% | 1.21% | 1.38% | -0.61% | |
| GBP | -0.59% | -0.40% | -0.55% | 0.11% | 0.80% | 0.92% | -1.15% | |
| JPY | 0.49% | 0.51% | 0.55% | 1.03% | 1.67% | 1.87% | -0.30% | |
| CAD | -0.53% | -0.50% | -0.11% | -1.03% | 0.78% | 0.86% | -1.15% | |
| AUD | -1.40% | -1.21% | -0.80% | -1.67% | -0.78% | 0.16% | -1.83% | |
| NZD | -1.40% | -1.38% | -0.92% | -1.87% | -0.86% | -0.16% | -1.99% | |
| CHF | 0.58% | 0.61% | 1.15% | 0.30% | 1.15% | 1.83% | 1.99% |
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 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).
Wall Street's main indexes turned south after the opening bell on Thursday, helping the USD find demand in the second half of the day. Early Friday, the data published by the UK's Office for National Statistics showed that Retail Sales declined 1.2% on a monthly basis in June. This reading followed the 2.9% increase recorded in May and came in weaker than analysts' forecast of -0.4%, further weighing on Pound Sterling.
The economic calendar will not offer any high-impact data releases ahead of the weekend. Hence, the risk perception could continue to impact GBP/USD's action.
At the time of press, US stock index futures were down between 0.3% and 0.4%. In the meantime, the UK's FTSE 100 Index is down 0.6% on the day.
Investors will also pay close attention to comments from Federal Reserve (Fed) officials before the Fed blackout period starts this Saturday. Currently, the CME Group FedWatch Tool shows that markets are nearly fully pricing in a 25 basis points rate cut in September. This positioning suggests that the USD does not have a lot of room on the downside, even if Fed officials voice support for a rate reduction in September.
GBP/USD Technical Analysis
GBP/USD dropped below the lower limit of the ascending regression channel coming from early July and the Relative Strength Index (RSI) indicator on the 4-hour chart fell below 40, reflecting a buildup of bearish pressure.
On the downside, 1.2900 (psychological level, static level) aligns as immediate support before 1.2875 (Fibonacci 38.2% retracement) and 1.2820-1.2830 (100-period Simple Moving Average (SMA) on the 4-hour chart, Fibonacci 50% retracement).
1.2930 (50-period SMA) could be seen as first resistance before 1.2960 (lower limit of the ascending channel) and 1.3000 (psychological level, static 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, 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.
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.
