GBP/USD Forecast: Pound Sterling struggles to build on Monday gains ahead of BoE hearings
- GBP/USD loses its recovery momentum after posting strong gains on Monday.
- BoE Governor Bailey will testify before the UK Treasury Select Committee.
- The near-term technical outlook suggests that bulls remain hesitant.
GBP/USD gathered bullish momentum and gained nearly 0.5% on Monday, snapping a six-day losing streak in the process. The pair, however, lost its traction after approaching 1.2700 and started to edge lower toward 1.2650 in the European morning on Tuesday.
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 strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.34% | -0.40% | 0.25% | -0.48% | -0.75% | -0.44% | -0.45% | |
| EUR | 0.34% | 0.11% | 0.70% | -0.02% | -0.26% | 0.01% | 0.00% | |
| GBP | 0.40% | -0.11% | 0.59% | -0.13% | -0.38% | -0.10% | -0.12% | |
| JPY | -0.25% | -0.70% | -0.59% | -0.72% | -0.92% | -0.63% | -0.62% | |
| CAD | 0.48% | 0.02% | 0.13% | 0.72% | -0.25% | 0.03% | 0.03% | |
| AUD | 0.75% | 0.26% | 0.38% | 0.92% | 0.25% | 0.27% | 0.27% | |
| NZD | 0.44% | -0.01% | 0.10% | 0.63% | -0.03% | -0.27% | -0.01% | |
| CHF | 0.45% | -0.00% | 0.12% | 0.62% | -0.03% | -0.27% | 0.00% |
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 selling pressure surrounding the US Dollar (USD) helped GBP/USD stretch higher in the second half of the day on Monday. In the absence of high-tier macroeconomic data releases, the pullback seen in the US Treasury bond yields made it difficult for the USD to build on the previous week's gains.
Later in the session, Bank of England (BoE) Governor Andrew Bailey and members of the Monetary Policy Committee (MPC) will respond to questions from the UK Treasury Select Committee.
Following the November policy meeting, the BoE cut the policy rate by 25 basis points to 4.75% and revised inflation projections higher. In the post-meeting press conference, Governor Bailey noted that a gradual approach to cutting rates will help give them time to assess the impact of national insurance rise and other risks.
In case Bailey leaves the door open for another rate reduction in December, GBP/USD could have a hard time extending its rebound. On the other hand, the pair could push higher if Bailey suggests that they could skip a meeting to evaluate how the new budget will impact price and wage inflation before taking another policy step.
In the second half of the day, the US economic calendar will feature Building Permits and Housing Starts data for October, which are unlikely to trigger a noticeable market reaction.
GBP/USD Technical Analysis
GBP/USD broke out of the descending regression channel but the Relative Strength Index (RSI) indicator on the 4-hour chart turned south after coming within a touching distance of 50, reflecting buyers' hesitancy to bet on another leg higher.
On the upside, 1.2700 (round level, static level) aligns as immediate resistance before 1.2770 (50-period Simple Moving Average) and 1.2800 (round level, static level). Looking south, first support could be spotted at 1.2630 (static level, former resistance) ahead of 1.2600 (round level, static level) and 1.2530 (static 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.
