GBP/USD Forecast: Pound Sterling shows signs of life ahead of PMI data
- GBP/USD trades in positive territory slightly below 1.2400 early Friday.
- PMI reports from the UK and the US could drive the pair's action heading into the weekend.
- The technical outlook suggests that buyers retain control in the near term.
GBP/USD holds its ground early Friday and trades in positive territory slightly below 1.2400 after posting modest daily gains on Thursday. Market participants await preliminary January PMI reports from the UK and the US.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.80% | -1.75% | -0.54% | -0.86% | -1.95% | -2.02% | -0.85% | |
| EUR | 1.80% | -0.02% | 1.19% | 0.84% | -0.10% | -0.34% | 0.83% | |
| GBP | 1.75% | 0.02% | 1.14% | 0.85% | -0.06% | -0.32% | 0.85% | |
| JPY | 0.54% | -1.19% | -1.14% | -0.33% | -1.37% | -1.59% | -0.50% | |
| CAD | 0.86% | -0.84% | -0.85% | 0.33% | -1.03% | -1.17% | -0.00% | |
| AUD | 1.95% | 0.10% | 0.06% | 1.37% | 1.03% | -0.34% | 0.85% | |
| NZD | 2.02% | 0.34% | 0.32% | 1.59% | 1.17% | 0.34% | 0.99% | |
| CHF | 0.85% | -0.83% | -0.85% | 0.50% | 0.00% | -0.85% | -0.99% |
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).
The positive shift seen in risk mood during the Asian trading hours caused the US Dollar (USD) to weaken against its rivals and helped GBP/USD gain traction. US President Donald Trump said in an interview that he would rather not have to use tariffs on China, easing concerns over an aggressive tariff policy stoking inflation and hurting the USD.
In the UK, S&P Global/CIPS Composite PMI is forecast to edge lower to 50 in January's flash estimate from 50.4 in December. A reading below 50, which would point to a contraction in the private sector's economic activity, could weigh on Pound Sterling and trigger a leg lower in GBP/USD with the immediate reaction.
In the second half of the day, markets will pay close attention to US PMI figures. S&P Global Manufacturing PMI is seen improving slightly to 49.6 from 49.4 in December. The USD could benefit from a print above 50 and make it difficult for GBP/USD to hold its ground.
Investors will also keep a close eye on the risk perception heading into the weekend. At the time of press, US stock index futures were down between 0.1% and 0.2%. If Wall Street's main indexes turn north after the opening bell, the USD could struggle to outperform its rivals.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) on the 4-hour chart holds comfortably above 60, reflecting the bullish stance in the near term. On the upside, the Fibonacci 50% retracement level of the latest downtrend and the 200-period Simple Moving Average (SMA) form a strong resistance area at 1.2450-1.2460. In case GBP/USD manages to clear that hurdle, 1.2500 (round level, static level) could be seen as next resistance before 1.2530 (Fibonacci 61.8% retracement).
On the downside, 1.2370 (Fibonacci 38.2% retracement) aligns as immediate support before 1.2310 (100-period SMA) and 1.2260 (Fibonacci 23.6% 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.
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.
