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GBP/USD Forecast: Pound Sterling struggles to hold above key technical level

  • GBP/USD trades in positive territory above 1.2950 on Monday.
  • The US Dollar started the week under strong selling pressure.
  • The cautious market mood could limit the pair's upside.

After closing in negative territory for the fifth consecutive week, GBP/USD opened with a bullish gap and rose toward 1.3000 early Monday. 

The broad-based selling pressure surrounding the US Dollar (USD) fuelled GBP/USD's rally at the beginning of the week. Uncertainty surrounding the outcome of the US presidential election seems to be weighing on the USD, especially after betting site PredictIt placed a 51% probability of a Vice President Kamala Harris win on Tuesday, marking her first lead over Republican candidate Donald Trump since October 9. 

British Pound PRICE Today

The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the US Dollar.

 USDEURGBPJPYCADAUDNZDCHF
USD -0.54%-0.43%-0.03%-0.02%-0.43%-0.05%-0.23%
EUR0.54% 0.07%0.07%0.12%0.42%0.09%-0.08%
GBP0.43%-0.07% -0.26%0.05%0.35%0.03%-0.17%
JPY0.03%-0.07%0.26% 0.00%0.16%0.19%0.09%
CAD0.02%-0.12%-0.05%-0.01% -0.19%-0.04%-0.22%
AUD0.43%-0.42%-0.35%-0.16%0.19% -0.32%-0.53%
NZD0.05%-0.09%-0.03%-0.19%0.04%0.32% -0.20%
CHF0.23%0.08%0.17%-0.09%0.22%0.53%0.20% 

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).

Meanwhile, US stock index futures trade mixed in the early European session, reflecting a cautious market mood. Investors could refrain from taking large positions until they have a clear picture of who the next president of the US will be. In case there is a selloff in US stocks following the opening bell, GBP/USD could have a difficult time stretching higher.

The US economic calendar will feature Factory Orders figures for September this week but markets are unlikely to react to this data. On Friday, the US Bureau of Labor Statistics (BLS) announced that Nonfarm Payrolls (NFP) in the US rose by only 12,000 in October. This reading followed the 223,000 increase (revised from 254,000) recorded in September and missed the market expectation of 113,000 by a wide margin. In its press release, the BLS explained that it was likely that payroll employment estimates in some industries were affected by the hurricanes.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 50 but GBP/USD struggles to hold above 1.2980, where the 100-day Simple Moving Average (SMA) is located, reflecting buyers' hesitancy.

In case 1.2980 holds as resistance, 1.2940 (static level) could be seen as next support before 1.2900 (round level). Once GBP/USD stabilizes above 1.2980, 1.3000 (static level, 20-day SMA) could act as interim resistance ahead of 1.3040 (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

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.

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