GBP/USD Forecast: Pound Sterling stabilizes but struggles to gather recovery momentum
- GBP/USD stays below 1.3000 after closing flat on Tuesday.
- Technical sellers could take action in case the pair flips 1.2970 into resistance.
- The risk-averse market environment could limit the pair's recovery attempts.
GBP/USD rose slightly above 1.3000 during the European trading hours on Tuesday but failed to stabilize there, closing the day virtually unchanged. The pair fluctuates in a narrow band below 1.3000 in the European morning on Wednesday, while the technical outlook shows no signs of a recovery.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.75% | 0.64% | 1.98% | 0.06% | 0.62% | 0.64% | 0.48% | |
| EUR | -0.75% | -0.18% | 1.13% | -0.63% | -0.15% | -0.22% | -0.35% | |
| GBP | -0.64% | 0.18% | 1.33% | -0.57% | 0.00% | 0.00% | -0.20% | |
| JPY | -1.98% | -1.13% | -1.33% | -1.90% | -1.32% | -1.27% | -1.53% | |
| CAD | -0.06% | 0.63% | 0.57% | 1.90% | 0.48% | 0.64% | 0.29% | |
| AUD | -0.62% | 0.15% | -0.01% | 1.32% | -0.48% | 0.08% | -0.22% | |
| NZD | -0.64% | 0.22% | -0.00% | 1.27% | -0.64% | -0.08% | -0.21% | |
| CHF | -0.48% | 0.35% | 0.20% | 1.53% | -0.29% | 0.22% | 0.21% |
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).
Tuesday's empty economic calendar allowed the risk-perception to influence GBP/USD's action on Tuesday. Wall Street's main indexes struggled to gain traction and ended the day with small changes, allowing the US Dollar (USD) to stay resilient against its rivals.
Bank of England (BoE) Governor Andrew Bailey will speak at an event organized by the Institute of International Finance later in the day. In case Bailey adopts a dovish tone by acknowledging continuous progress in disinflation and doesn't push back against the market expectation of more rate cuts this year, the immediate market reaction could cause Pound Sterling to weaken further.
On the flip side, Existing Home Sales data for September will be the only data featured in the US economic calendar. In the meantime, US stock index futures were last seen losing between 0.2% and 0.3% on the day. A bearish opening in Wall Street could continue to support the USD.
GBP/USD Technical Analysis
GBP/USD stays within the descending channel coming from late September and the Relative Strength Index (RSI) indicator on the 4-hour chart stays well below 50, reflecting the bearish bias. The 100-day Simple Moving Average (SMA) forms a strong support level at 1.2970. If this support fails, the mid-point of the descending channel could be seen as the next bearish target at 1.2930 before 1.2900 (round level).
On the upside, interim resistance is located at 1.3000 (round level, static level) before 1.3040 (upper limit of the channel) and 1.3100 (100-period SMA on the 4-hour chart).
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.
