GBP/USD Forecast: Pound Sterling sets trading range before next breakout
- GBP/USD fluctuates in a tight range below 1.3500 on Friday.
- The near-term technical picture highlights the pair's indecisiveness.
- The US economic calendar will feature PCE inflation data for April.
GBP/USD managed to rebound from the multi-day low it set early Thursday and ended the day with small gains. The pair struggles to gather directional momentum early Friday and trades in a narrow band below 1.3500.
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 strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.37% | 0.45% | 1.17% | 0.62% | 1.20% | 0.64% | 0.39% | |
| EUR | -0.37% | 0.10% | 0.83% | 0.26% | 0.83% | 0.28% | 0.04% | |
| GBP | -0.45% | -0.10% | 0.41% | 0.16% | 0.73% | 0.18% | -0.04% | |
| JPY | -1.17% | -0.83% | -0.41% | -0.54% | 0.01% | -0.58% | -0.78% | |
| CAD | -0.62% | -0.26% | -0.16% | 0.54% | 0.59% | 0.02% | -0.21% | |
| AUD | -1.20% | -0.83% | -0.73% | -0.01% | -0.59% | -0.59% | -0.77% | |
| NZD | -0.64% | -0.28% | -0.18% | 0.58% | -0.02% | 0.59% | -0.23% | |
| CHF | -0.39% | -0.04% | 0.04% | 0.78% | 0.21% | 0.77% | 0.23% |
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 US Dollar (USD) failed to preserve its strength on Thursday as the Court of Appeals for the Federal Circuit decided to reinstate US President Donald Trump's reciprocal tariffs, which were blocked by the Court of International Trade on Wednesday.
Additionally, the worse-than-expected weekly Initial Jobless Claims data further weighed on the USD, allowing GBP/USD to shake off the bearish pressure.
The US economic calendar will feature the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's preferred gauge of inflation, for April later in the day.
Markets expect the core PCE Price Index, which excludes volatile food and energy prices, to rise by 0.1% on a monthly basis in April after remaining unchanged in March. In case the data comes in at 0.3%, or higher, investors could see this as a development that could delay the Federal Reserve's next rate cut to beyond July. In this scenario, the USD could outperform its rivals and cause GBP/USD to push lower. On the other hand, a negative print in this data could feed into market expectation for a July rate cut and hurt the USD.
According to the CME FedWatch Tool, markets are currently pricing in about a 25% probability of a 25 basis points reduction in the policy rate in July.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) moves sideways slightly below 50 and GBP/USD trades at around the 50-period and the 20-period Simple Moving Averages (SMA) on the 4-hour chart, reflecting a lack of directional momentum.
On the upside, 1.3500 (mid-point of the ascending channel, round level) could be seen as the first resistance level ahead of 1.3600 (end-point of the uptrend).
Looking south, interim support could be seen at 1.3430 (static level) before 1.3380-1.3370, where the Fibonacci 23.6% retracement level, the 20-day Simple Moving Average (SMA) and the 100-period SMA on the 4-hour chart align. A daily close below this area could attract technical sellers and open the door for another leg lower toward 1.3300 (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.
