GBP/USD Weekly Forecast: Bearish potential to hold in a key week ahead

The Pound Sterling sellers regained poise as the United States Dollar (USD) resumed its recovery, dragging GBP/USD under the 1.2600 round level. The major looks forward to the US inflation data and the United Kingdom’s quarterly growth report as a saving grace.

GBP/USD: What happened last week?

Following a dovish US Federal Reserve (Fed) policy decision week, the US Dollar bulls jumped back, regaining confidence after strong data indicated economic resilience in the United States and revived bets for more Fed rate hikes. The Greenback tracked the upsurge in the US Treasury bond yields on renewed economic optimism, shrugging off the US fiscal concerns, prompting GBP/USD to extend its corrective decline from 15-month highs.

Tuesday’s US ISM Manufacturing PMI improved below expectations in July, arriving at 46.4 vs. 46.8 expected, which rekindled recession fears, but the US Dollar remained in a win-win situation due to its safe-haven status. Meanwhile, the drop (to 9.582 million in June) in the US JOLTS Job Openings had a limited impact on the Greenback.

It was Wednesday’s US ADP Employment Change data, however, that reaffirmed the US Dollar’s recovery. The US Dollar rallied to fresh monthly highs against its six major rival currencies after the benchmark 10-year US Treasury bond yields reached a nine-month peak. US private sector employment gains in July totaled 324,000, compared with the expected 189,000 job additions in the reported month.

The selling pressure around the GBP/USD pair doubled down following the Bank of England’s (BoE) monetary policy announcements on Thursday. The BoE raised rates by the expected 25 basis points (bps) to 5.25%. The Meeting Minutes were deemed dovish, while the quarterly Monetary Policy Report (MPR) showed a reduction in the GDP and inflation forecasts for the long term. Although the central bank left doors open for further rate hkes, Governor Andrew Bailey’s non-committal stance on the policy path weighed heavily on the Pound Sterling, knocking off GBP/USD to two-month lows of 1.2620.

Pound Sterling buyers, however, found some respite from the mixed US economic data released Thursday. The Greenback failed to sustain at monthly highs and retreated after US Jobless Claims and the Q2 Unit Labor Cost Index came in mixed, while the highly-anticipated ISM Services PMI dropped to 52.7 in July vs. 53.0 expected.

The US Dollar extended its pullback on Friday, motivating Pound Sterling buyers to recover ground above 1.2700. Nonfarm Payrolls in the US rose 187,000 in July, compared to the market expectation of 200,000. Moreover, June’s increase of 209,000 got revised lower to 185,000. Although the jobs report also revealed that annual wage inflation held steady at 4.4%, while the Unemployment Rate ticked down to 3.5% from 3.6% in June, the USD struggled to shake off the selling pressure in the American session.

Week ahead: All eyes on US CPI and UK GDP data

Following two straight weeks of central banks’ action, GBP/USD braces for a relatively quiet week, although the top-tier Consumer Price Index (CPI) inflation data from the United States and the quarterly Gross Domestic Product (GDP) report from the United Kingdom will entertain Pound Sterling traders.

Monday is devoid of any high-impact economic statistics from both sides of the Atlantic. Therefore, the focus will turn toward Tuesday’s Chinese Trade Balance data, which could have a reasonable impact on the broader market sentiment, in turn, influencing the higher-yielding Pound Sterling. Later that day, the US Trade Balance report will fill in an otherwise light docket.

China’s CPI and Producer Price Index (PPI) data will stand out in the absence of relevant US and UK economic events on Wednesday. Traders will gear up for Thursday’s all-important US inflation data release, which will have a strong impact on the Fed’s interest rate outlook for the rest of this year. The data has the potential to change the US Dollar valuations and thus, the GBP/USD price action. The US weekly Jobless Claims data and the Federal Budget Balance will be also published on the same day.

Friday will be the busiest day of the week in terms of data releases, as the preliminary estimate of the second quarter UK GDP will drop alongside the monthly release and the Industrial Production data. Any indications that the UK economy is heading toward a recession will act as a major headwind for the Pound Sterling. In American trading, the US PPI inflation data and the preliminary University of Michigan (UoM) Consumer Sentiment and Inflation Expectations will keep traders busy.

Apart from the data releases, GBP/USD will also take cues from speeches from Fed and BoE policymakers, as well as, from the overall market sentiment.

GBP/USD: Technical outlook

GBP/USD’s daily technical setup remains in favor of Pound Sterling sellers, with a test of the critical support of the bullish 100-day Simple Moving Average (SMA) at 1.2575 on the cards.

The 14-day Relative Strength Index (RSI) indicator remains below the 50 level, suggesting that any recovery attempts in GBP/USD is likely to fade.

The next relevant downside target for Pound Sterling sellers is envisioned at 1.2487, the June 12 low, below which a fresh decline could be fuelled toward the 1.2400 round number.

Alternatively, if the pair yields a weekly close above the 50-day SMA at 1.2736 and stabilizes above that level, buyers could see a decent recovery toward 1.2850.

The flattish 21-day SMA at 1.2890 will be next on Pound Sterling buyers’ radars. Acceptance above the latter will initiate a fresh uptrend toward the July 27 high of 1.2995.

GBP/USD: Forecast poll

FXStreet Forecast Poll highlights a slightly bearish bias for GBP/USD in the short term. The one-week average target aligns slightly below 1.2800. The one-month and one-quarter outlooks remain mixed.