GBP/USD Forecast: Pound Sterling shows signs of life but upside remains capped
- GBP/USD trades marginally higher near 1.2700 in the European session.
- Upbeat employment data from the UK support Pound Sterling.
- The pair's action could turn subdues ahead of UK inflation data and Fed meeting.
Following the sharp decline seen in the second half of the previous week, GBP/USD staged a correction and closed in positive territory on Monday. The pair holds its ground and trades at around 1.2700 in the European session on Tuesday.
US Dollar PRICE Last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the weakest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.62% | 0.43% | 1.72% | 0.76% | 1.47% | 1.79% | 2.07% | |
| EUR | -0.62% | -0.18% | 1.06% | 0.12% | 0.84% | 1.17% | 1.44% | |
| GBP | -0.43% | 0.18% | 1.23% | 0.31% | 1.03% | 1.35% | 1.63% | |
| JPY | -1.72% | -1.06% | -1.23% | -0.94% | -0.23% | 0.08% | 0.37% | |
| CAD | -0.76% | -0.12% | -0.31% | 0.94% | 0.71% | 1.04% | 1.32% | |
| AUD | -1.47% | -0.84% | -1.03% | 0.23% | -0.71% | 0.32% | 0.61% | |
| NZD | -1.79% | -1.17% | -1.35% | -0.08% | -1.04% | -0.32% | 0.28% | |
| CHF | -2.07% | -1.44% | -1.63% | -0.37% | -1.32% | -0.61% | -0.28% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Early Tuesday, the data published by the UK's Office for National Statistics (ONS) showed that the ILO Unemployment Rate held steady at 4.3% in the three months to October, as expected. In this period, Employment Change was up by 173,000, while annual wage inflation, as measured by the Average Earnings Excluding Bonus, rose to 5.2% from 4.9%.
Although the negative shift seen in risk mood helps the US Dollar gather strength in the European session, GBP/USD manages to hold its ground following the labor market data.
In the second half of the day, the US Census Bureau will publish Retail Sales data for November, which is expected to post an increase of 0.5% on a monthly basis following the 0.4% growth recorded in October. Ahead of the Federal Reserve's (Fed) monetary policy announcements, however, the market reaction to this data could remain short-lived. In case Wall Street's main indexes turn south after the opening bell, the USD could continue to outperform its rivals and cap GBP/USD's upside.
In the European morning on Wednesday, the UK's ONS will release the Consumer Price Index (CPI) data for November.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 50, reflecting sellers' hesitancy. In case GBP/USD confirms 1.2700 (100-period Simple Moving Average (SMA), Fibonacci 38.2% retracement of the latest downtrend) as support, it could face the next resistance at 1.2730 (200-period SMA) before 1.2750 (Fibonacci 50% retracement).
Looking south, first support could be spotted at 1.2660 (20-period SMA) ahead of 1.2620 (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.
