GBP/USD Forecast: Pound Sterling turns fragile as key resistance holds
- GBP/USD trades slightly below 1.2650 in the European morning on Thursday.
- Pound Sterling failed to benefit from stronger-than-forecast October UK inflation data.
- The technical picture points to a buildup of bearish momentum ahead of US data releases.
After failing to stabilize above 1.2700 on Wednesday, GBP/USD came under renewed bearish pressure and closed marginally lower on the day. The pair stays on the back foot in the European morning on Thursday and trades slightly 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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.05% | -0.21% | 0.43% | -0.88% | -0.85% | 0.02% | -0.47% | |
| EUR | -0.05% | -0.09% | 0.49% | -0.82% | -0.76% | 0.08% | -0.41% | |
| GBP | 0.21% | 0.09% | 0.57% | -0.73% | -0.67% | 0.17% | -0.32% | |
| JPY | -0.43% | -0.49% | -0.57% | -1.31% | -1.20% | -0.34% | -0.81% | |
| CAD | 0.88% | 0.82% | 0.73% | 1.31% | 0.06% | 0.91% | 0.41% | |
| AUD | 0.85% | 0.76% | 0.67% | 1.20% | -0.06% | 0.85% | 0.35% | |
| NZD | -0.02% | -0.08% | -0.17% | 0.34% | -0.91% | -0.85% | -0.49% | |
| CHF | 0.47% | 0.41% | 0.32% | 0.81% | -0.41% | -0.35% | 0.49% |
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 early trading hours of the European session, GBP/USD edged higher after the data from the UK showed that inflation in October rose at a stronger pace than expected. The risk-averse market environment, however, supported the US Dollar and forced the pair to turn south in the second half of the day.
At the time of press, US stock index futures were down between 0.15% and 0.5% on the day, pointing to a cautious market mood. A bearish opening in Wall Street could boost the USD in the American session and cause GBP/USD to stretch lower.
In the early American session, the US Department of Labor will publish the weekly Initial Jobless Claims data. Markets expect the number of first-time applications for unemployment benefits to rise slightly to 220,000 in the week ending November 16 from 217,000 in the previous week. A reading close to 200,000 could allow the USD to gather strength against its rivals with the immediate reaction. On the flip side, a print above 240,000 could weigh on the currency and help GBP/USD limit its losses.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart continues to edge lower toward 40 and GBP/USD trades below the 20-period Simple Moving Average (SMA), reflecting the bearish bias.
On the downside, 1.2600 (static level) aligns as next support before 1.2530 (static level from February) and 1.2500 (static level, round level). Looking north, interim resistance could be spotted at 1.2660 (20-period SMA) ahead of 1.2700 (Fibonacci 23.6% retracement of the latest downtrend, 50-period SMA) and 1.2750 (Fibonacci 38.2% 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.
(This story was corrected on November 21 at 09:57 GMT to say in the first bullet point that GBP/USD trades slightly below 1.2650, not 1.650).
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.
