GBP/USD Forecast: Pound Sterling trades dangerously close to 1.2590

GBP/USD declined to the 1.2600 area in the European session on Thursday.
The US Dollar gathers strength following Wednesday's choppy action.
The 200-day SMA aligns as key support at 1.2590.

Eren Sengezer FXStreet

GBP/USD came under bearish pressure and fell slightly below 1.2600 in the European session on Thursday. The 200-day Simple Moving Average (SMA) aligns as key technical support at 1.2590.

The renewed US Dollar (USD) strength weighs on GBP/USD in the second half of the week. Federal Reserve (Fed) Governor Christopher Waller said on Wednesday that the US central bank was in no rush to cut rates amid sticky inflation data and argued that it might be appropriate to hold the restrictive stance for longer than previously thought to help inflation return to the 2% target on a sustainable trajectory.

Meanwhile, the cautious market mood allows the USD to preserve its strength early Thursday as US stock index futures trade marginally lower on the day.

Later in the session, the US Bureau of Economic Analysis will release the final revision to the fourth-quarter Gross Domestic Product growth reading. The US Department of Labor will publish the weekly Initial Jobless Claims, which is forecast to edge higher to 215K from 210K in the previous week. A print below the market expectation could support the USD with the immediate reaction.

Bond and stock markets in the US and the UK will remain closed on Friday in observance of the Easter holiday. Hence, the market volatility could heighten toward the end of the European session, with investors adjusting their positions on the last trading day of the first quarter.

GBP/USD Technical Analysis

In case GBP/USD closes the day below the 200-day SMA at 1.2590 and starts using this level as resistance, technical sellers could remain interested. In this scenario, 1.2550 (beginning point of the latest uptrend) and 1.2500 (static level) could be set as next bearish targets.

On the upside, GBP/USD could stage a recovery if it manages to stabilize above 1.2590/1.2600 (200-day SMA, psychological level). 1.2640 (100-day SMA) and 1.2670-1.2680 (Fibonacci 61.8% retracement of the latest uptrend, 200-period SMA on the 4-hour chart, 50-day SMA) could be seen as next hurdles.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.

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