GBP/USD Forecast: Pound Sterling struggles to hold above key resistance
- GBP/USD retreats from multi-month high it set early Monday.
- The pair needs to flip 1.2650-1.2655 into support to keep the bullish stance.
- Several BoE policymakers will be delivering speeches later in the day.
After closing the previous week in positive territory, GBP/USD stretched higher early Monday and touched its strongest level since December 18 at 1.2690. The pair seems to have entered a consolidation phase following the bullish weekly opening and it was last seen trading below 1.2650.
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 strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.22% | -0.39% | -1.72% | 0.24% | -0.22% | -0.40% | -0.03% | |
| EUR | -0.22% | -0.46% | -1.97% | 0.12% | -0.36% | -0.52% | -0.15% | |
| GBP | 0.39% | 0.46% | -1.44% | 0.58% | 0.16% | -0.06% | 0.31% | |
| JPY | 1.72% | 1.97% | 1.44% | 2.00% | 1.56% | 1.56% | 1.69% | |
| CAD | -0.24% | -0.12% | -0.58% | -2.00% | -0.44% | -0.64% | -0.28% | |
| AUD | 0.22% | 0.36% | -0.16% | -1.56% | 0.44% | -0.16% | 0.20% | |
| NZD | 0.40% | 0.52% | 0.06% | -1.56% | 0.64% | 0.16% | 0.37% | |
| CHF | 0.03% | 0.15% | -0.31% | -1.69% | 0.28% | -0.20% | -0.37% |
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 risk-positive market atmosphere in the early Asian session caused the US Dollar (USD) to come under selling pressure and helped GBP/USD gain traction. Although the market mood remains upbeat, with US stock index futures gaining between 0.5% and 0.7%, GBP/USD finds it difficult to preserve its bullish momentum.
In the second half of the day, the Federal Reserve Bank of Chicago's National Activity Index will be the only data featured in the US economic docket, which is unlikely to trigger a noticeable market reaction. Meanwhile, investors will pay close attention to comments from Bank of England (BoE) Deputy Governor Dave Ramsden and BoE policymaker Swati Dhingra.
In case BoE officials adopt a cautious tone about the inflation outlook, the initial reaction could help Pound Sterling hold its ground. On the flip side, GBP/USD could push lower if policymakers voice their willingness to continue to ease the policy despite the stronger-than-forecast UK inflation readings for January.
On Tuesday, regional manufacturing surveys from the US and the Conference Board's Consumer Confidence Index data from the US will be looked upon for fresh impetus.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart retreats toward 50, reflecting a loss of bullish momentum. Additionally, GBP/USD failed to make a daily close above the 100-day Simple Moving Average (SMA), currently located at 1.2655, despite rising above this level for three consecutive trading days.
On the downside, first support could be seen at 1.2600 (round level, static level) ahead of 1.2530 (Fibonacci 61.8% retracement of the latest downtrend) and 1.2500 (round level, static level). In case GBP/USD rises above 1.2650-1.2655 (Fibonacci 78.6% retracement, 100-day SMA) and confirms that area as support, it could face next resistance levels at 1.2700-1.2710 (round level, static level) and 1.2750 (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.
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.
