GBP/USD Forecast: Pound Sterling stabilizes between key technical levels
- GBP/USD fluctuates near 1.2550 following Monday's choppy action.
- The pair could extend its downtrend if 1.2500 support fails.
- On the upside, key resistance seems to have formed at 1.2600.
After briefly rising above 1.2600 on Monday, GBP/USD reversed its direction to close the day in the red. The pair declined to the 1.2500 area during the Asian trading hours on Monday but managed to recover toward 1.2550 by the European morning.
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 | -0.54% | -0.13% | 0.02% | 1.22% | 0.37% | 0.24% | -0.45% | |
| EUR | 0.54% | 0.25% | -0.05% | 1.17% | 0.84% | 0.24% | -0.51% | |
| GBP | 0.13% | -0.25% | -0.29% | 0.92% | 0.59% | 0.00% | -0.77% | |
| JPY | -0.02% | 0.05% | 0.29% | 1.22% | 0.80% | 0.34% | -0.30% | |
| CAD | -1.22% | -1.17% | -0.92% | -1.22% | -0.69% | -0.92% | -1.71% | |
| AUD | -0.37% | -0.84% | -0.59% | -0.80% | 0.69% | -0.59% | -1.35% | |
| NZD | -0.24% | -0.24% | -0.01% | -0.34% | 0.92% | 0.59% | -0.77% | |
| CHF | 0.45% | 0.51% | 0.77% | 0.30% | 1.71% | 1.35% | 0.77% |
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 came under heavy selling pressure at the start of the week and helped GBP/USD gather bullish momentum. News of Donald Trump selecting fund manager Scott Bessent as the US Treasury Secretary eased concerns over unorthodox fiscal policies. Later in the day, however, markets have adopted a cautious stance as Trump announced that he would impose a 25% tax on all products entering the US from Canada and Mexico in addition to a 10% tariff on goods from China as one of his first executive orders.
During the American trading hours, the Federal Reserve will publish the minutes of the November policy meeting, at which it decided to lower the policy rate by 25 basis points (bps).
Investors will scrutinize the publication to try to figure out whether the US central bank is likely to lower the policy rate again in December. The CME FedWatch Tool currently shows that markets are pricing in a nearly 44% probability of the Fed leaving the policy rate unchanged at the December policy meeting, suggesting that the USD is facing a two-way risk.
In case the publication shows that policymakers are willing to cut the policy rate again by 25 bps before the end of the year, the USD could come under renewed selling pressure, opening the door for a rebound in GBP/USD. Conversely, the pair could stretch lower if the FOMC Minutes suggest that further policy easing in December is not a done deal, with officials preferring to see more data to confirm either a further weakening in labor market conditions or a lack of progress in disinflation.
GBP/USD Technical Analysis
GBP/USD trades within the descending regression channel and the Relative Strength Index moves sideways near 40 early Tuesday, highlighting a lack of buyer interest.
The mid-point of the descending channel aligns as critical support at 1.2500. If GBP/USD falls below this level and starts using it as resistance, 1.2400 (lower limit of the descending channel) could be seen as the next bearish target.
On the upside, strong resistance seems to have formed at 1.2600, where the upper limit of the descending channel is located. In case GBP/USD clears that level, it could face the next hurdle at 1.2630 (50-period Simple Moving Average) ahead of 1.2700 (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.
