GBP/USD Forecast: Pound Sterling struggles to remain bullish after mixed UK PMI
- GBP/USD trades above 1.2700 in the European session on Thursday.
- UK PMI data showed that private sector continued to grow in May.
- Markets await PMI reports and Initial Jobless Claims data from the US.
GBP/USD climbed to a two-month-high above 1.2750 on Wednesday after the UK inflation data for April came in stronger than expected but lost its traction in the American session to close the day little changed. Early Thursday, the pair trades in a tight range above 1.2700.
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 | 0.29% | -0.11% | 0.72% | 0.43% | 0.98% | 0.31% | 0.59% | |
| EUR | -0.29% | -0.43% | 0.48% | 0.15% | 0.72% | 0.02% | 0.31% | |
| GBP | 0.11% | 0.43% | 0.76% | 0.58% | 1.14% | 0.44% | 0.71% | |
| JPY | -0.72% | -0.48% | -0.76% | -0.30% | 0.26% | -0.40% | -0.13% | |
| CAD | -0.43% | -0.15% | -0.58% | 0.30% | 0.50% | -0.14% | 0.14% | |
| AUD | -0.98% | -0.72% | -1.14% | -0.26% | -0.50% | -0.71% | -0.40% | |
| NZD | -0.31% | -0.02% | -0.44% | 0.40% | 0.14% | 0.71% | 0.28% | |
| CHF | -0.59% | -0.31% | -0.71% | 0.13% | -0.14% | 0.40% | -0.28% |
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 minutes of the Federal Reserve's (Fed) April 30-May 1 policy meeting showed that some policymakers were willing to reconsider rate increases if necessary. Although the meeting took place before the US inflation data for April showed modest progress in disinflation, the US Dollar (USD) gathered strength against its rivals after the release of the minutes.
Early Thursday, S&P Global/CIPS reported that Composite PMI in the UK edged lower to 52.8 in May's flash estimate from 54.1 in April. This reading came in below the market expectation of 54 and pointed to a loss of growth momentum in the private sector's business activity. In turn, GBP/USD struggled to stage a rebound.
Commenting on the PMI surveys, “the flash PMI survey data for May signalled a further expansion of UK business activity, suggesting the economy continues to recover from the mild recession seen late last year," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
"The survey data are consistent with GDP rising by around 0.3% in the second quarter, with an encouraging revival of manufacturing accompanied by sustained, but slower, service sector growth," Williamson added.
In the second half of the day, S&P Global PMI data for the US will be watched closely by market participants. An unexpected drop below 50 in the Composite PMI could hurt the USD and allow GBP/USD to regain its traction. On the other hand, a reading above 52 could have the opposite effect on the pair's action. The US economic docket will also feature the weekly Initial Jobless Claims data.
GBP/USD Technical Analysis
GBP/USD holds in the upper half of the ascending regression channel but the Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 50, highlighting a loss of bullish momentum.
On the downside, 1.2710-1.2700 (mid-point of the ascending channel, static level) aligns as immediate support before 1.2660 (50 period Simple Moving Average (SMA), Fibonacci 61.8% retracement of the latest downtrend) and 1.2600 (lower limit of the ascending channel).
Resistances are located at 1.2760 (Fibonacci 78.6% retracement), 1.2800 (upper limit of the ascending channel) and 1.2850 (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, aka ‘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.
