GBP/USD Forecast: Pound Sterling struggles to find direction after Fed
- GBP/USD extends sideways action near 1.2450, remains directionless on Thursday.
- The Fed left the monetary policy settings unchanged, as anticipated.
- The US BEA will publish the first estimate of the fourth-quarter GDP data.
GBP/USD struggles to find direction and fluctuates in a tight band at around 1.2450 after closing virtually unchanged on Wednesday. The Federal Reserve's (Fed) monetary policy announcements fail to influence the US Dollar's (USD) valuation in a noticeable way as market focus shifts to US growth data.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.87% | 0.32% | -0.79% | 0.30% | 1.35% | 0.98% | 0.26% | |
| EUR | -0.87% | -0.47% | -1.49% | -0.42% | 0.49% | 0.24% | -0.50% | |
| GBP | -0.32% | 0.47% | -1.33% | 0.06% | 0.96% | 0.73% | -0.06% | |
| JPY | 0.79% | 1.49% | 1.33% | 1.15% | 2.34% | 2.03% | 1.17% | |
| CAD | -0.30% | 0.42% | -0.06% | -1.15% | 0.85% | 0.67% | -0.11% | |
| AUD | -1.35% | -0.49% | -0.96% | -2.34% | -0.85% | -0.21% | -0.95% | |
| NZD | -0.98% | -0.24% | -0.73% | -2.03% | -0.67% | 0.21% | -0.99% | |
| CHF | -0.26% | 0.50% | 0.06% | -1.17% | 0.11% | 0.95% | 0.99% |
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 Fed said late Wednesday that it left the policy rate unchanged at 4.25%-4.5%. In the policy statement, the Fed removed the language suggesting inflation had "made progress" toward its 2% target and said the pace of price increases "remains elevated" instead.
In the post-meeting press conference, Fed Chairman Jerome Powell acknowledged that there was elevated uncertainty because of significant policy shifts. "We don't need to be in a hurry to make any adjustments," he repeated. Although the USD edged higher with the immediate reaction, it struggled to preserve its strength as the Fed event offered little to nothing new on the rate outlook.
On Thursday, the US Bureau of Economic Analysis (BEA) will release its first estimate of the fourth-quarter Gross Domestic Product (GDP) data. Investors expect the US economy to grow at an annualized rate of 2.6% following the 3.1% growth recorded in the third quarter. A weaker-than-forecast print could weigh on the USD and help GBP/USD gain traction. On the flip side, a GDP print at or above the market consensus could force GBP/USD to stay on the back foot.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds slightly above 50 but moves sideways, suggesting that the bullish bias remains intact, while lacking momentum.
GBP/USD was last seen trading at around 1.2450, where the Fibonacci 50% retracement level of the latest downtrend and the 200-period Simple Moving Average (SMA) align. In case GBP/USD confirms 1.2450 as resistance, 1.2400 (static level, round level) could be seen as next support before 1.2370 (Fibonacci 38.2% retracement) and 1.2310 (100-period SMA). Looking north, resistances could be spotted at 1.2500 (round level, static level) and 1.2530 (Fibonacci 61.8% 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.
