GBP/USD Forecast: Pound Sterling tests critical support level
- GBP/USD trades slightly below 1.3450 in the European session on Wednesday.
- Technical sellers could remain interested if 1.3430 support fails.
- Pound Sterling's losses could remain limited in case EUR/GBP extends the slide.
GBP/USD trades in the red below 1.3450 after posting small gains on Tuesday. The pair faces a key support level at 1.3430.
Pound Sterling Price This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.16% | 0.54% | 0.72% | 0.18% | 0.33% | 0.66% | 0.61% | |
| EUR | -1.16% | -0.61% | -0.50% | -0.97% | -0.75% | -0.50% | -0.53% | |
| GBP | -0.54% | 0.61% | -0.02% | -0.36% | -0.20% | 0.11% | 0.08% | |
| JPY | -0.72% | 0.50% | 0.02% | -0.48% | -0.36% | 0.00% | 0.02% | |
| CAD | -0.18% | 0.97% | 0.36% | 0.48% | 0.17% | 0.51% | 0.45% | |
| AUD | -0.33% | 0.75% | 0.20% | 0.36% | -0.17% | 0.31% | 0.29% | |
| NZD | -0.66% | 0.50% | -0.11% | -0.00% | -0.51% | -0.31% | -0.03% | |
| CHF | -0.61% | 0.53% | -0.08% | -0.02% | -0.45% | -0.29% | 0.03% |
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 US Dollar (USD) struggled to find demand on Tuesday as investors reacted to the escalating conflict between United States (US) President Donald Trump and Federal Reserve (Fed) Governor Lisa Cook.
Cook will reportedly file a lawsuit challenging Trump's decision to remove her. While speaking at a Cabinet meeting late Tuesday, Trump noted that he is prepared to abide by any court decision but indicated he was not concerned about Cook’s challenge.
Early Wednesday, the USD benefits from the cautious market mood and makes it difficult for GBP/USD to hold its ground.
In the meantime, the EUR/GBP cross turns south in the European session as the Euro comes under selling pressure amid the political turmoil in France. In case Pound Sterling continues to capture capital outflows out of the Euro, GBP/USD's downside could remain limited in the near term.
Later in the day, the economic calendar will not offer any high-tier data releases that could influence GBP/USD's action. Hence, investors could remain focused on risk perception.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 40, highlighting a bearish tilt in the near-term outlook.
On the downside, the 200-period Simple Moving Average (SMA) aligns as the first support level at 1.3430. In case GBP/USD falls below this level and starts using it as resistance, technical sellers could take action. In this scenario, 1.3400-1.3390 (static level, Fibonacci 38.2% retracement of the latest downtrend) could be seen as the next support level before 1.3330 (static level).
Looking north, resistance levels could be spotted at 1.3460 (100-period SMA, Fibonacci 50% retracement), 1.3500 (static level, round level) and 1.3540 (Fibonacci 61.8% retracement).
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.
