GBP/USD Forecast: Pound Sterling turns bearish to start the week
- GBP/USD stays on the back foot in the European morning on Monday.
- The near-term technical picture points to a bearish tilt.
- An upbeat ISM Manufacturing PMI data could further weigh on the pair.
After posting modest gains on Thursday and Friday, GBP/USD started the new week under modest bearish pressure and declined to the 1.2700 area. The pair's near-term technical outlook suggests that sellers could look to retain control.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.07% | 0.27% | -0.09% | 0.20% | 0.19% | -0.04% | -0.08% | |
| EUR | -0.07% | 0.23% | -0.17% | 0.13% | 0.00% | -0.11% | -0.16% | |
| GBP | -0.27% | -0.23% | -0.32% | -0.10% | -0.16% | -0.40% | -0.39% | |
| JPY | 0.09% | 0.17% | 0.32% | 0.26% | 0.32% | 0.19% | 0.18% | |
| CAD | -0.20% | -0.13% | 0.10% | -0.26% | -0.04% | -0.24% | -0.29% | |
| AUD | -0.19% | -0.00% | 0.16% | -0.32% | 0.04% | -0.12% | -0.17% | |
| NZD | 0.04% | 0.11% | 0.40% | -0.19% | 0.24% | 0.12% | -0.08% | |
| CHF | 0.08% | 0.16% | 0.39% | -0.18% | 0.29% | 0.17% | 0.08% |
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).
Ahead of the weekend, the data published by the US Bureau of Economic Analysis showed that the core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) preferred gauge of inflation, rose 0.2% on a monthly basis in April. This reading followed the 0.3% increase recorded in March and came in below the market expectation of 0.3%. In turn, the US Dollar (USD) struggled to find demand and allowed GBP/USD to hold its ground.
Early Monday, the cautious market stance supports the USD and makes it difficult for GBP/USD to gains traction.
In the second half of the day, the ISM Manufacturing PMI from the US will be looked upon for fresh impetus. Analysts expect the headline PMI to edge higher to 49.8 in May from 49.2 in April. In case the PMI reading disappoints and shows an ongoing contraction in the manufacturing sector's business activity, the initial reaction could hurt the USD and help GBP/USD rebound. On the flip side, a positive surprise could provide a boost to the USD and drag GBP/USD lower.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declined to 40, pointing to a buildup of bearish momentum. GBP/USD faces first support at 1.2680-1.2670, where the 100-period Simple Moving Average (SMA) meets the Fibonacci 23.6% retracement of the latest uptrend. If the pair falls below this level and starts using it as resistance, 1.2600 (Fibonacci 38.2% retracement) and 1.2580 (200-period Simple Moving Average) could be seen as next supports.
On the upside, 1.2740-1.2750 (50-period SMA, static level) aligns as first resistance before 1.2790-1.2800 (static level, psychological level).
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, 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).
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.
