GBP/USD Forecast: Pound Sterling stabilizes near key support level
- GBP/USD moves sideways below 1.3150 in the European session on Monday.
- The pair could stretch lower in case 1.3130 turns into resistance.
- Markets are likely to remain quiet as trading conditions remain thin.
GBP/USD turned south on renewed US Dollar (USD) strength and lost 0.7% last week. The pair fluctuates in a very narrow band during the European session morning but the technical outlook suggests that the bearish bias stays intact.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.13% | 0.63% | 1.72% | -0.14% | 0.20% | -0.11% | 0.25% | |
| EUR | -1.13% | -0.55% | 0.58% | -1.24% | -1.00% | -1.21% | -0.85% | |
| GBP | -0.63% | 0.55% | 1.02% | -0.76% | -0.46% | -0.73% | -0.36% | |
| JPY | -1.72% | -0.58% | -1.02% | -1.80% | -1.40% | -1.56% | -1.34% | |
| CAD | 0.14% | 1.24% | 0.76% | 1.80% | 0.34% | 0.08% | 0.39% | |
| AUD | -0.20% | 1.00% | 0.46% | 1.40% | -0.34% | -0.21% | 0.15% | |
| NZD | 0.11% | 1.21% | 0.73% | 1.56% | -0.08% | 0.21% | 0.35% | |
| CHF | -0.25% | 0.85% | 0.36% | 1.34% | -0.39% | -0.15% | -0.35% |
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).
Upbeat macroeconomic data releases from the US provided a boost to the USD in the second half of the previous week. On Friday, the data published by the Bureau of Economic Analysis showed that the core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) preferred gauge of inflation, rose 0.2% on a monthly basis, as forecast. This reading allowed the USD to extend its rebound into the weekend.
The economic calendar will not offer any high-impact data releases that could drive GBP/USD's action on Monday. Furthermore, financial markets in the US will remain closed in observance of the Labor Day holiday, paving the way for an extended sideways action in the pair.
The ISM will release Manufacturing and Services PMI data for August later this week. More importantly, the US Bureau of Labor Statistics will publish the August jobs report on Friday, which will include Nonfarm Payrolls, Unemployment Rate and wage inflation figures.
GBP/USD Technical Analysis
GBP/USD continues to trade below the 20-period and the 50-period Simple Moving Averages (SMA) on Monday. Additionally, the Relative Strength Index (RSI) stays near 40, pointing to a lack of recovery momentum.
On the downside, immediate support is located at 1.3130, where the Fibonacci 23.6% retracement of the latest uptrend is located. If GBP/USD falls below this level and starts using it as resistance, 1.3100 (static level) could act as interim support ahead of 1.3050 (Fibonacci 38.2% retracement).
On the other side, 1.3160-1.3170 (50-period SMA, 20-period SMA) form the first resistance area before 1.3200 (static level, psychological level) and 1.3260 (end-point of the uptrend).
(This story was corrected on September 2 at 09:57 GMT to say that 1.3160-1.3170 form the first resistance area, not 1.3710.)
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, aka ‘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.
