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GBP/USD Forecast: Sellers hesitate as market mood improves

  • GBP/USD trades in positive territory above 1.3400 on Friday.
  • The technical outlook suggests that the bearish pressure is easing.
  • The University of Michigan will publish the preliminary Consumer Sentiment Index for July.

Following Thursday's choppy action, GBP/USD gains traction and rises toward 1.3450 in the European session on Friday.

British Pound PRICE Today

The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the US Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.33%-0.18%0.00%-0.17%-0.45%-0.49%-0.35%
EUR0.33%0.15%0.33%0.16%-0.12%-0.28%-0.02%
GBP0.18%-0.15%0.16%0.02%-0.26%-0.38%-0.16%
JPY0.00%-0.33%-0.16%-0.18%-0.46%-0.60%-0.26%
CAD0.17%-0.16%-0.02%0.18%-0.31%-0.40%-0.18%
AUD0.45%0.12%0.26%0.46%0.31%-0.11%0.11%
NZD0.49%0.28%0.38%0.60%0.40%0.11%0.22%
CHF0.35%0.02%0.16%0.26%0.18%-0.11%-0.22%

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).

Although Pound Sterling managed to hold its ground following the employment report, the upbeat data releases from the US supported the US Dollar and made it difficult for the pair to gather bullish momentum on Thursday.

The US Census Bureau reported that Retail Sales in the US rose by 0.6% on a monthly basis in June, surpassing the market forecast for an increase of 0.1%. Additionally, the number of first-time applications for unemployment benefits declined to 221,000 from 228,000 in the previous week.

Meanwhile, dovish comments from Federal Reserve (Fed) Governor Christopher Waller, who said late Thursday that he continues to believe that the Fed should cut its interest rate target at the July meeting, limited the USD's gains and allowed GBP/USD to keep its footing.

The University of Michigan (UoM) will release the preliminary Consumer Sentiment Index data for July later in the day. Investors could ignore the headline number and react to the 1-year Consumer Inflation Expectations component of the survey. A noticeable increase in this data could boost the USD with the immediate reaction. Nevertheless, in case markets remain risk-positive heading into the weekend, GBP/USD could stretch higher. At the time of press, US stock index futures were up between 0.1% and 0.2%.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart recovered to 50 and GBP/USD closed the last three 4-hour candles above the 20-period Simple Moving Average (SMA), reflecting a lack of seller interest.

On the upside, 1.3470 (Fibonacci 50% retracement of the latest uptrend) aligns as the first resistance level before 1.3500 (static level, round level) and 1.3540 (Fibonacci 38.2% retracement). Looking south, support levels could be seen at 1.3400-1.3390 (round level, Fibonacci 61.8% retracement) and 1.3300 (Fibonacci 78.6% 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.

Author

Eren Sengezer

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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