GBP/USD Forecast: Pound Sterling stabilizes below 1.2600
- GBP/USD fluctuates below 1.2600 after closing in positive territory on Friday.
- The pair remains bearish in the near-term technical outlook.
- The risk perception could drive GBP/USD's action in the second half of the day.
After suffering large losses on Wednesday and Thursday, GBP/USD corrected higher on Friday but ended up closing the week in the red. The pair stays in a consolidation phase below 1.2600 early Monday as trading conditions remain thin ahead of the Christmas holiday.
British Pound PRICE Last 7 days
The table below shows the percentage change of British Pound (GBP) against listed major currencies last 7 days. British Pound was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.82% | 0.39% | 1.85% | 1.04% | 1.66% | 1.98% | 0.17% | |
| EUR | -0.82% | -0.37% | 1.16% | 0.29% | 1.01% | 1.23% | -0.59% | |
| GBP | -0.39% | 0.37% | 1.40% | 0.69% | 1.38% | 1.58% | -0.22% | |
| JPY | -1.85% | -1.16% | -1.40% | -0.81% | -0.18% | 0.14% | -1.57% | |
| CAD | -1.04% | -0.29% | -0.69% | 0.81% | 0.67% | 0.91% | -0.87% | |
| AUD | -1.66% | -1.01% | -1.38% | 0.18% | -0.67% | 0.22% | -1.58% | |
| NZD | -1.98% | -1.23% | -1.58% | -0.14% | -0.91% | -0.22% | -1.79% | |
| CHF | -0.17% | 0.59% | 0.22% | 1.57% | 0.87% | 1.58% | 1.79% |
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 Federal Reserve's (Fed) hawkish dot plot and the Bank of England relatively dovish language following the last policy meeting of the year triggered a sharp decline in GBP/USD. The positive shift seen in risk mood heading into weekend on US Congress' avoidance of a government shutdown caused the US Dollar (USD) to weaken against its rivals and helped the pair erase a portion of its weekly losses.
Meanwhile, the softer-than-expected November inflation data put additional weight on the USD's shoulders. The US Bureau of Economic Analysis reported that the core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) preferred gauge of inflation, rose 0.1% on a monthly basis in November. This reading followed the 0.3% increase recorded in October and came in below the market expectation of 0.2%.
In the absence of high-tier data releases, investors could react to changes in risk perception in the second half of the day. At the time of press, US stock index futures were up between 0.1% and 0.5%. A bullish opening in Wall Street could make it difficult for the USD to stay resilient against its rivals and support GBP/USD.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 50 and GBP/USD is yet to make a 4-hour close above the 20-period Simple Moving Average (SMA), reflecting buyers' hesitancy.
On the downside, interim support is located at 1.2550 (static level) before 1.2480 (static level) and 1.2400 (static level, round level). Looking north, resistances could be seen at 1.2600 (static level, round level), 1.2640 (50-period SMA) and 1.2680 (100-period SMA).
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.
