GBP/USD Forecast: Pound Sterling technical corrections to remain shallow
- GBP/USD climbed above 1.2900 for the first time in nearly four months.
- The technical outlook points to overbought conditions in the near term.
- The pair's correction attempts could remain short-lived ahead of Friday's US labor market data.
GBP/USD extended its rally into a third consecutive day on Wednesday and gained nearly 0.8%. The pair is already up about 2.5% this week as it trades at its highest level since November, above 1.2900.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -3.95% | -2.47% | -1.12% | -0.76% | -2.05% | -2.34% | -1.29% | |
| EUR | 3.95% | 1.43% | 2.72% | 3.13% | 1.88% | 1.48% | 2.59% | |
| GBP | 2.47% | -1.43% | 1.38% | 1.68% | 0.44% | 0.05% | 1.14% | |
| JPY | 1.12% | -2.72% | -1.38% | 0.56% | -0.90% | -1.21% | -0.19% | |
| CAD | 0.76% | -3.13% | -1.68% | -0.56% | -1.14% | -1.60% | -0.53% | |
| AUD | 2.05% | -1.88% | -0.44% | 0.90% | 1.14% | -0.39% | 0.69% | |
| NZD | 2.34% | -1.48% | -0.05% | 1.21% | 1.60% | 0.39% | 1.09% | |
| CHF | 1.29% | -2.59% | -1.14% | 0.19% | 0.53% | -0.69% | -1.09% |
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 positive shift seen in risk mood forced the US Dollar (USD) to stay under pressure midweek, allowing GBP/USD to gather further bullish momentum. News of US President Donald Trump granting the US automative industry a one-month exemption from 25% tariffs imposed on Canada and Mexico, and planning to do the same for some agricultural products, helped the risk mood improve on Wednesday.
In the meantime, Pound Sterling also benefitted from hawkish Bank of England (BoE) commentary. While testifying before the UK Treasury Select Committee on Wednesday, BoE policymaker Megan Greene said it is appropriate to maintain a cautious and gradual approach to removing monetary restrictiveness. "The evidence points against more rapid cuts in the bank rate for me," Greene added.
In the second half of the day, the US Department of Labor will publish the weekly Initial Jobless Claims data. Markets expect the number of first-time applications for unemployment benefits to decline to 235,000 from 242,000. A bigger-than-expected drop in this data could support the USD with the immediate reaction. Investors, however, could refrain from taking large positions ahead of Friday's highly-anticipated February employment report.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the daily chart holds near 80 and GBP/USD trades above the upper limit of the ascending regression channel, highlighting overbought conditions.
On the downside, 1.2870 (upper limit of the ascending channel) aligns as first support before 1.2800 (200-day Simple Moving Average) and 1.2750 (mid-point of the ascending channel). Looking north, first resistance could be seen at 1.3000 (static level, round level) before 1.3040 (static level from November).
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.
