GBP/USD Forecast: Pound Sterling struggles to clear resistance level after PMI data
- GBP/USD trades marginally lower on the day near 1.3400 in the European session.
- S&P Global Composite PMI in the UK recovered to 49.4 in May's flash estimate.
- Key technical resistance level at 1.3440 remains intact.
GBP/USD retreats to the 1.3400 area in the European session on Thursday after ending the first three days of the week higher. The pair's technical outlook highlights a loss of bullish momentum as market focus shifts to Purchasing Managers Index (PMI) data releases from the US.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.96% | -0.85% | -1.28% | -0.65% | -0.26% | -0.32% | -1.20% | |
| EUR | 0.96% | 0.08% | -0.28% | 0.37% | 0.84% | 0.70% | -0.24% | |
| GBP | 0.85% | -0.08% | -0.65% | 0.28% | 0.75% | 0.62% | -0.33% | |
| JPY | 1.28% | 0.28% | 0.65% | 0.61% | 1.19% | 1.17% | 0.13% | |
| CAD | 0.65% | -0.37% | -0.28% | -0.61% | 0.42% | 0.34% | -0.61% | |
| AUD | 0.26% | -0.84% | -0.75% | -1.19% | -0.42% | -0.13% | -1.06% | |
| NZD | 0.32% | -0.70% | -0.62% | -1.17% | -0.34% | 0.13% | -0.94% | |
| CHF | 1.20% | 0.24% | 0.33% | -0.13% | 0.61% | 1.06% | 0.94% |
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 data from the UK showed early Thursday that the economic activity in the private sector contracted at a softer pace in May than it did in April, with S&P Global Composite PMI recovering to 49.4 from 48.5.
Commenting on the survey's findings, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that inflationary pressures moderated considerably from the spike seen in April.
"These reduced price pressures, coupled with signs of faltering economic growth and job losses, likely keeps the door open for further interest rate cuts in the coming months," Williamson added. Pound Sterling struggles to stay resilient against its rivals following the PMI report.
Later in the day, S&P Global PMI surveys from the US will be scrutinized by market participants. In case the data point to an ongoing expansion at an accelerating pace, the US Dollar (USD) could gather recovery momentum and cause GBP/USD to extend its correction. Conversely, the USD could come under renewed selling pressure if the PMI data come in below 50.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 50, reflecting a loss of bullish momentum. On the downside, 1.3400 (20-period Simple Moving Average (SMA), static level) aligns as immediate support before 1.3315 (100-period SMA, 50-period SMA), and 1.3270 (Fibonacci 23.6% retracement of the latest uptrend).
Looking north, resistance levels could be spotted at 1.3440 (upper limit of the latest uptrend), 1.3500 (static level, round level) and 1.3550 (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.
