GBP/USD Forecast: Pound Sterling tests key support after weak UK data
- GBP/USD trades below 1.2650 in the European morning on Friday.
- Disappointing UK GDP data weighs on Pound Sterling.
- The pair could extend its slide if 1.2620 support fails.
After spending the first half of the week in a tight range, GBP/USD turned south and lost more than 0.5% on Thursday. The pair stays under pressure early Friday and trades below 1.2650.
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 weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.95% | 0.93% | 2.19% | 0.52% | 0.43% | 1.43% | 1.74% | |
| EUR | -0.95% | -0.01% | 1.33% | -0.34% | -0.40% | 0.56% | 0.86% | |
| GBP | -0.93% | 0.00% | 1.18% | -0.34% | -0.42% | 0.56% | 0.87% | |
| JPY | -2.19% | -1.33% | -1.18% | -1.65% | -1.62% | -0.86% | -0.35% | |
| CAD | -0.52% | 0.34% | 0.34% | 1.65% | -0.04% | 0.90% | 1.21% | |
| AUD | -0.43% | 0.40% | 0.42% | 1.62% | 0.04% | 0.99% | 1.30% | |
| NZD | -1.43% | -0.56% | -0.56% | 0.86% | -0.90% | -0.99% | 0.29% | |
| CHF | -1.74% | -0.86% | -0.87% | 0.35% | -1.21% | -1.30% | -0.29% |
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 persistent US Dollar (USD) strength caused GBP/USD to decline sharply in the American session on Thursday. The US Bureau of Labor Statistics reported that the annual Producer Price Index rose by 3% in November. This reading followed October's increase of 2.6% and surpassed the market expectation of 2.6%, lifting US Treasury bond yields and boosting the USD. Additionally, the USD benefited from the risk-averse market environment as Wall Street's main indexes declined after the opening bell.
Early Friday, the data published by the UK's Office for National Statistics showed the Gross Domestic Product contracted by 0.1% on a monthly basis in October, coming in worse than analysts' estimate for an expansion of 0.1%. In the same period, Industrial Production and Manufacturing Production both declined by 0.6%, putting additional weight on Pound Sterling's shoulders.
The US economic calendar will not offer any high-tier data releases that could impact GBP/USD action in the second half of the day. In case safe-haven flows continue to dominate the financial markets, GBP/USD could have a difficult time staging a rebound.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 30, suggesting that there could be a technical correction before the next leg lower. 1.2620 (Fibonacci 23.6% retracement of the latest downtrend) aligns as immediate support before 1.2600 (static level, round level) and 1.2530 (static level).
On the upside, first resistance could be spotted at 1.2675 (100-period Simple Moving Average (SMA)) ahead of 1.2700 (Fibonacci 38.2% retracement) and 1.2750 (200-period SMA, Fibonacci 50% 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.
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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.
