GBP/USD Forecast: Pound Sterling tests key resistance ahead of Fed
- GBP/USD continues to push higher after closing in positive territory on Monday.
- The pair could extend the uptrend once 1.3640 is confirmed as support.
- The Fed's two-day policy meeting will start later in the day.
GBP/USD benefits from the broad-based selling pressure surrounding the US Dollar (USD) and trades at its highest level in over two months above 1.3630. As markets gear up for the Federal Reserve's (Fed) critical policy meeting, the USD could have a hard time gathering strength and allow GBP/USD to cling to its bullish stance.
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 strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.62% | -0.60% | -0.41% | -0.51% | -0.35% | -0.33% | -0.61% | |
| EUR | 0.62% | 0.05% | 0.16% | 0.12% | 0.32% | 0.26% | 0.00% | |
| GBP | 0.60% | -0.05% | 0.16% | 0.06% | 0.27% | 0.20% | -0.16% | |
| JPY | 0.41% | -0.16% | -0.16% | -0.12% | 0.11% | 0.07% | -0.20% | |
| CAD | 0.51% | -0.12% | -0.06% | 0.12% | 0.27% | 0.14% | -0.23% | |
| AUD | 0.35% | -0.32% | -0.27% | -0.11% | -0.27% | -0.06% | -0.35% | |
| NZD | 0.33% | -0.26% | -0.20% | -0.07% | -0.14% | 0.06% | -0.36% | |
| CHF | 0.61% | -0.01% | 0.16% | 0.20% | 0.23% | 0.35% | 0.36% |
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).
In the American session on Monday, the positive shift in risk mood weighed on the USD. Moreover, growing expectations for a dovish Fed outlook following White House economic adviser Stephen Miran's confirmation to join the Federal Reserve Board and vote at the upcoming meeting hurt the currency further.
Early Tuesday, the UK's Office for National Statistics (ONS) announced that the ILO Unemployment Rate remained unchanged at 4.7% in the three months to July, as anticipated. In this period, annual wage inflation, as measured by the change in the Average Earnings Excluding Bonus, edged lower to 4.8% from 5% to match the market expectation. These figures were largely ignored by market participants.
The US Census Bureau will release Retail Sales data for August later in the day. Although a stronger-than-expected increase in this data could help the USD show some resilience with the immediate reaction, investors could refrain from taking large positions.
In the meantime, US stock index futures trade modestly higher in the European session. In case the market mood remains upbeat after a bullish opening in Wall Street, the USD is likely to remain under bearish pressure.
GBP/USD Technical Analysis
The Fibonacci 78.6% retracement of the latest downtrend aligns as an immediate resistance level at 1.3640. In case GBP/USD rises above this level and starts using it as support, 1.3700 (static level, round level) could be seen as the next hurdle before 1.3770 (static level, beginning point of the downtrend).
Looking south, support levels could be spotted at 1.3600 (static level, round level), 1.3540 (Fibonacci 61.8% retracement) and 1.3500 (static level, 100-period Simple Moving Average).
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.
