GBP/USD Forecast: Pound Sterling turns fragile after weak PMI data
- GBP/USD trades near 1.3500 in the European session on Tuesday.
- Disappointing PMI data from the UK make it difficult for Pound Sterling to find demand.
- Market focus shifts to US PMI data and Fed Chair Powell's speech.
GBP/USD finds it difficult to keep its footing following Monday's recovery and trades marginally lower on the day at around 1.3500. The technical outlook suggests that the pair remains bearish in the short term.
Pound Sterling 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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.00% | 0.00% | -0.13% | 0.10% | -0.05% | 0.04% | -0.17% | |
| EUR | -0.01% | 0.13% | -0.12% | 0.14% | 0.02% | 0.09% | -0.13% | |
| GBP | -0.01% | -0.13% | -0.20% | 0.00% | -0.11% | -0.05% | -0.26% | |
| JPY | 0.13% | 0.12% | 0.20% | 0.22% | 0.13% | 0.17% | 0.05% | |
| CAD | -0.10% | -0.14% | -0.00% | -0.22% | -0.13% | -0.03% | -0.26% | |
| AUD | 0.05% | -0.02% | 0.11% | -0.13% | 0.13% | 0.07% | -0.07% | |
| NZD | -0.04% | -0.09% | 0.05% | -0.17% | 0.03% | -0.07% | -0.21% | |
| CHF | 0.17% | 0.13% | 0.26% | -0.05% | 0.26% | 0.07% | 0.21% |
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).
Following a quiet Asian session, GBP/USD lost its traction as the disappointing Purchasing Managers' Index (PMI) data weighed on Pound Sterling.
The S&P Global Composite PMI fell to 51 in September's flash estimate from 53.5, missing the market expectation of 52.7. In this period, the Manufacturing PMI declined to 46.2 from 47, while the Services PMI dropped to 51.9 from 54.2.
Commenting on the survey's findings, "September’s flash UK PMI survey brought a litany of worrying news including weakening growth, slumping overseas trade, worsening business confidence and further steep job losses," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
S&P Global will publish the preliminary September PMI data for the US later in the day. Manufacturing PMI and Services PMI are forecast to edge lower to 52 and 53.9, respectively. In case either PMI comes in below 50 and shows a contraction, the immediate reaction could hurt the US Dollar (USD) and help GBP/USD turn north. On the flip side, the USD is likely to hold its ground if PMIs arrive near analysts' estimates.
Later in the session, Federal Reserve (Fed) Chairman Jerome Powell will speak on the US economic outlook. In case Powell voices growing concerns over the labor market conditions, the USD could have a hard time finding demand and help GBP/USD edge higher. On the flip side, the USD could gather strength if Powell refrains from confirming two more rate cuts this year, citing upside risks to inflation. According to the CME FedWatch Tool, markets are currently pricing in about a 75% probability of the Fed opting for a total of 50 basis points reduction in the policy rate by the end of the year.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) on the 4-hour chart remains below 50 and GBP/USD trades below the 100-period and the 200-period Simple Moving Averages (SMAs), reflecting buyers' hesitancy.
On the downside, the first support level could be seen at 1.3470 (Fibonacci 38.2% retracement of the latest uptrend) before 1.3410-1.3400 (Fibonacci 50% retracement, round level). Looking north, resistance levels could be spotted at 1.3510-1.3525 (200-period SMA, 100-period SMA), 1.3550 (Fibonacci 23.6% retracement) and 1.3600 (static level, round 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, 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.
