GBP/USD Forecast: Pound Sterling struggles to attract buyers
- GBP/USD trades in a narrow range above 1.3500 on Tuesday.
- The technical outlook highlights buyers' hesitancy in the near term.
- The economic calendar will not feature any high-impact data releases.
GBP/USD stretched lower in the Asian session on Tuesday and touched its lowest level in a week below 1.3500 before staging a rebound. The pair's near-term technical outlook suggests that investors refrain from placing themselves for an extended 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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.27% | 0.23% | 0.34% | -0.00% | 0.30% | -0.00% | -0.03% | |
| EUR | -0.27% | -0.04% | 0.05% | -0.27% | 0.05% | -0.30% | -0.29% | |
| GBP | -0.23% | 0.04% | -0.02% | -0.23% | 0.09% | -0.26% | -0.30% | |
| JPY | -0.34% | -0.05% | 0.02% | -0.32% | -0.01% | -0.31% | -0.37% | |
| CAD | 0.00% | 0.27% | 0.23% | 0.32% | 0.28% | -0.00% | -0.06% | |
| AUD | -0.30% | -0.05% | -0.09% | 0.01% | -0.28% | -0.35% | -0.39% | |
| NZD | 0.00% | 0.30% | 0.26% | 0.31% | 0.00% | 0.35% | -0.07% | |
| CHF | 0.03% | 0.29% | 0.30% | 0.37% | 0.06% | 0.39% | 0.07% |
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 renewed US Dollar (USD) strength on souring market mood caused GBP/USD to turn south at the beginning of the week. However, headlines coming out of the meeting between United States (US) President Donald Trump and Ukrainian President Volodymyr Zelenskyy helped geopolitical tensions ease, limiting the USD's gains.
US Secretary of State Marco Rubio noted that they will work with European allies and non-European countries on providing security guarantees for Ukraine. Additionally, Zelenskyy noted that they are ready to meet with Russian President Vladimir Putin.
Housing Starts and Building Permits data will be featured in the US economic docket on Tuesday, which are unlikely to trigger a noticeable market reaction.
Hence, investors are likely to remain focused on the risk perception. A bullish opening in Wall Street could allow GBP/USD to edge higher.
In the European morning on Wednesday, the UK's Office for National Statistics will publish inflation data for July. On a yearly basis, the Consumer Price Index (CPI) is forecast to rise 3.7%.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 50, suggesting that GBP/USD struggles to gather bullish momentum despite the recent rebound.
On the downside, 1.3500 (static level, 50-day Simple Moving Average (SMA), round level) aligns as the first support level before 1.3460 (Fibonacci 50% retracement of the latest downtrend, 200-period SMA) and 1.3400 (100-period SMA).
Looking north, resistance levels could be seen at 1.3540 (Fibonacci 61.8% retracement), 1.3590-1.3600 (static level, round level) and 1.3640 (Fibonacci 78.6% 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.
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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.
