• GBP/USD touched its lowest level since December near 1.2500 on Friday.
  • The technical outlook suggests that the bearish bias stays intact. 
  • BoE-ECB policy divergence could help Pound Sterling limit its losses.

After posting small gains on Thursday, GBP/USD turned south and touched its lowest level in four months near 1.2500 in the early European session on Friday. The near-term technical picture shows that the bearish potential remains intact but an extended slide in the EUR/GBP pair could help GBP/USD limit its losses.

Mixed macroeconomic data releases from the US caused the US Dollar (USD) rally to lose steam on Thursday and allowed GBP/USD to edge slightly higher. Additionally, the decline seen in EUR/GBP after the European Central Bank (ECB) policy announcements suggested that Pound Sterling managed to capture capital outflows out of the Euro.

Pound Sterling price this week

The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the weakest against the US Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   1.40% 0.87% 0.90% 0.84% 1.00% 0.42% 1.07%
EUR -1.44%   -0.55% -0.52% -0.58% -0.41% -1.00% -0.35%
GBP -0.88% 0.54%   0.03% -0.04% 0.13% -0.46% 0.20%
CAD -0.92% 0.50% -0.03%   -0.06% 0.10% -0.48% 0.15%
AUD -0.83% 0.59% 0.06% 0.08%   0.16% -0.42% 0.22%
JPY -1.02% 0.39% -0.13% -0.11% -0.18%   -0.58% 0.06%
NZD -0.42% 0.98% 0.45% 0.47% 0.41% 0.58%   0.64%
CHF -1.07% 0.34% -0.19% -0.16% -0.23% -0.05% -0.64%  

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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

 

EUR/GBP continues to edge lower early Friday, further helping Pound Sterling limit its losses against the USD. Bank of England (BoE) policymaker Megan Greene said on Thursday that the services inflation in the UK was much higher than in the US and added that rate cuts in the UK should "still be a way off." On the other hand, markets are fairly certain that the ECB will lower key rates in June and continue to ease the policy in the second half of the year. 

In the meantime, the USD benefits from escalating geopolitical tensions and growing expectations that the Federal Reserve (Fed) will hold the policy rate steady in June after strong inflation readings for March.

The US economic docket will not feature any high-tier data releases on Friday. In case safe-haven flows dominate the action in financial markets ahead of the weekend, GBP/USD could have a difficult time holding its ground.

GBP/USD Technical Analysis

GBP/USD stays in the lower half of the descending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart holds slightly above 30, suggesting that the pair has some more room on the downside before turning technical oversold.

1.2500 (static level, psychological level) aligns as first support before 1.2450 (lower limit of the descending channel) and 1.2420 (static level from November). On the upside, first resistance is located at 1.2550 (mid-point of the descending channel) before 1.2590 (200-day Simple Moving Average).

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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