GBP/USD Forecast: Upbeat PMI data support Pound Sterling despite overbought conditions
- GBP/USD trades at its highest level since July 2023 above 1.3100 on Thursday.
- S&P Global/CIPS Composite PMI in the UK improved to 53.4 in August.
- The US economic docket will feature S&P Global Services and manufacturing PMI data.
After closing the fifth consecutive trading day in positive territory, GBP/USD continued to edge higher on Thursday and touched its strongest level since July 2023 near 1.3130. Although the pair's technical outlook continues to highlight overbought conditions, upbeat PMI data from the UK seems to be helping Pound Sterling hold its ground.
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 strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.04% | -1.34% | -1.40% | -0.78% | -1.10% | -1.84% | -1.65% | |
| EUR | 1.04% | -0.38% | -0.32% | 0.27% | -0.15% | -0.97% | -0.64% | |
| GBP | 1.34% | 0.38% | -0.10% | 0.62% | 0.22% | -0.52% | -0.27% | |
| JPY | 1.40% | 0.32% | 0.10% | 0.54% | 0.26% | -0.33% | -0.39% | |
| CAD | 0.78% | -0.27% | -0.62% | -0.54% | -0.35% | -0.99% | -0.92% | |
| AUD | 1.10% | 0.15% | -0.22% | -0.26% | 0.35% | -0.66% | -0.49% | |
| NZD | 1.84% | 0.97% | 0.52% | 0.33% | 0.99% | 0.66% | 0.21% | |
| CHF | 1.65% | 0.64% | 0.27% | 0.39% | 0.92% | 0.49% | -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).
S&P Global/CIPS Composite PMI improved to 53.4 in August's flash estimate from 51.9 in July, highlighting an ongoing expansion in the private sector's business activity at an accelerating pace.
Assessing the PMI survey's findings, "August is witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation, according to provisional PMI survey data," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
In the second half of the day, S&P will release preliminary August PMI data for the US. Investors expect the Composite PMI to retreat to 53.5 from 54.3 in July. A disappointing PMI reading close to, or below, 50 could revive fears over a downturn in the US economy and cause the US Dollar (USD) to continue to weaken against its rivals. On the flip side, a positive surprise could have the opposite impact on the USD's valuation and make it difficult for GBP/USD to extend its rally.
GBP/USD Technical Analysis
GBP/USD trades near the upper limit of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart stays above 80, reflecting overbought conditions.
On the upside, strong resistance area seems to have formed at 1.3130-1.3140 (upper limit of the ascending channel, July 13, 2023, high) before 1.3200 (psychological level, static level).
1.3100 (psychological level) aligns as interim support before 1.3075 (mid-point of the ascending channel) and 1.3030 (lower limit of the ascending channel).
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.
