GBP/USD Weekly Forecast: Pound tests key support as US and UK data loom
- Pound Sterling corrects sharply as US Dollar demand returns with a bang.
- GBP/USD looks to high-impact US and UK data for a fresh directional impetus.
- Technically, GBP/USD challenged key 61.8% Fibo support, RSI stays neutral - what’s next?
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Pound Sterling gave in to the USD resurgence
GBP/USD faced a double whammy during the week, with resurgent haven demand for the US Dollar (USD) on one hand. While the dovish Bank of England (BoE) interest rate on hold decision smashed the pair on the other hand.
In doing so, the pair reversed a majority of gains seen from the beginning of this year, extending the correction from over four-year highs of 1.3869 reached on January 27.
The Greenback attracted haven demand as markets embarked on a solid rotation spree, with capital flowing out of overvalued and growth assets, such as tech stocks, Gold, Silver etc., into value assets and undermined ones like the USD.
Markets resorted to ‘sell-everything’ mode as the AI rout deepened, boosting the USD recovery against its six major currency rivals. The end of the partial government shutdown on Tuesday also helped the buck maintain its ground, despite a slew of weak US labor data and concerns over the US Federal Reserve’s (Fed) monetary policy outlook under the leadership of Kevin Warsh.
The Automatic Data Processing (ADP) Research Institute said on Wednesday, private sector employment in the US rose 22,000 in January, against a forecast of 48,000. Meanwhile, Initial claims for state unemployment benefits jumped 22,000 to a seasonally adjusted 231,000 for the week ended January 31, the Labor Department said on Thursday.
“The US December JOLTS report shows a steep drop-off in job openings to 6.54 million from a downwardly revised 6.93 million level in November,” according to ING Bank.
In the second half of the week, the dovish BoE storm pounded the Pound Sterling further. The UK central bank kept interest rates on hold at 3.75% in February.
The BoE nine-member Monetary Policy Committee (MPC) voted by a slim 5:4 majority to keep rates steady. Four members voted to lower rates.
Expectations of a sharp drop in inflation in the coming months also added to the dovish BoE outlook, fueling bets for a rate cut as early as next month.
Key US and UK economic data to watch out for
In light of the dovish tilt, the focus is now on a series of speeches from BoE policymakers, with Governor Andrew Bailey’s appearance late Sunday eagerly awaited.
A slew of Fed and BoE officials are also set to speak on Tuesday, with Monday being a data-light day.
Tuesday will also feature the US Retail Sales report and the quarterly Employment Cost Index.
On Wednesday, the delayed US January jobs data will be published, with key focus on the headline Nonfarm Payrolls print.
The quarterly and monthly Gross Domestic Product (GDP) data will be released from the United Kingdom (UK) on Thursday, followed by the US Jobless Claims data.
On Friday, BoE Chief Economist Huw Pill will participate in a fireside chat at an event hosted by Santander Bank in London ahead of the critical US Consumer Price Index (CPI) inflation report.
Besides these economic events, geopolitics will continue to grab attention amid US President Donald Trump’s erratic international policies.
GBP/USD Technical Analysis
The 21-, 50-, 100- and 200-day Simple Moving Averages (SMA) all rise, with the shorter ones positioned above the longer, reinforcing buyers’ control. Price holds above these markers, with the 21-day SMA at 1.3564 offering nearby dynamic support. The Relative Strength Index (RSI) stands at 51 (neutral) and has edged higher, hinting stabilizing momentum. Measured from the 1.3346 low to the 1.3868 high, the 61.8% retracement at 1.3545 offers a floor, while the 50.0% retracement at 1.3607 is the level bulls would seek to reclaim to extend the advance.
Shorter SMAs continue to advance over the medium-term ones, and the broader set trends higher, underpinning an upward bias. The pair trades above the 50-day SMA at 1.3475 and the 200-day SMA at 1.3430, keeping dip-buying interest intact. RSI near 51 remains neutral; a firm move above 60 would strengthen the upside impulse. On setbacks, the 100-day SMA at 1.3379 would serve as the next layer of support.
(The technical analysis of this story was written with the help of an AI tool.)
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.
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Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
