GBP/USD Forecast: Pound Sterling struggles to keep buyers interested
- GBP/USD trades deep in negative territory near 1.2250 in the European morning on Tuesday.
- The ILO Unemployment Rate edged higher to 4.4% in the UK.
- US President Donald Trump's tariff threats support the USD.
GBP/USD rose sharply and registered a 1.3% gain on Monday. The pair, however, reversed its direction and erased a large portion of its winnings early Tuesday. At the time of press, GBP/USD was trading near 1.2250, losing about 0.6% on the day.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.56% | 0.61% | 0.14% | 0.82% | 0.66% | 0.69% | 0.35% | |
| EUR | -0.56% | 0.07% | -0.39% | 0.27% | 0.11% | 0.15% | -0.21% | |
| GBP | -0.61% | -0.07% | -0.46% | 0.20% | 0.02% | 0.08% | -0.26% | |
| JPY | -0.14% | 0.39% | 0.46% | 0.65% | 0.49% | 0.51% | 0.18% | |
| CAD | -0.82% | -0.27% | -0.20% | -0.65% | -0.16% | -0.12% | -0.46% | |
| AUD | -0.66% | -0.11% | -0.02% | -0.49% | 0.16% | 0.03% | -0.30% | |
| NZD | -0.69% | -0.15% | -0.08% | -0.51% | 0.12% | -0.03% | -0.35% | |
| CHF | -0.35% | 0.21% | 0.26% | -0.18% | 0.46% | 0.30% | 0.35% |
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).
Although stock and bond markets in the US were closed in observance of the Martin Luther King Jr. Day holiday on Monday, the US Dollar (USD) came under strong selling pressure, fuelling GBP/USD's rally.
Reports suggesting that US President Donald Trump would stop short of announcing day-one tariffs at his inauguration ceremony on Monday triggered a risk rally and weighed on the USD.
In the early trading hours of the Asian session, however, Trump said that they could impose tariffs on China if they make a TikTok deal and China doesn't approve it. Additionally, he noted that they are planning to impose a 25% tariff on imports from Mexico and Canada as early as February 1, opening the door for a USD rebound.
In the European session on Tuesday, the UK's Office for National Statistics (ONS) announced that the ILO Unemployment Rate edged higher to 4.4% in the three months to November from 4.3%. Other details of the report showed that Employment Change was up 35K in the same period, down sharply from the 173K increase recorded in October. Finally, the annual wage inflation, as measured by the change in the Average Earnings Including Bonus, rose 5.6% after rising 5.2% previously. Disappointing UK labor market data seem to be making it difficult for Pound Sterling to stay resilient against the USD.
In the second half of the day, the US economic calendar will not offer any high-impact data releases. In case there is a bearish opening in Wall Street, followed by a sharp decline in major indexes, the USD could hold its ground and force GBP/USD to stay on the back foot.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 50 after rising to the 70 area on Monday, reflecting a loss of bullish momentum.
On the downside, 1.2230 (20-period Simple Moving Average (SMA), 50-SMA) aligns as immediate support before 1.2200 (round level, static level) and 1.2160 (static level). Looking north, resistances could be spotted at 1.2300 (round level), 1.2350 (100-period SMA) and 1.2370 (Fibonacci 38.2% retracement of the latest downtrend).
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.
