GBP/USD Weekly Forecast: Sell the Pound Sterling bounce, Jackson Hole Symposium in focus

The Pound Sterling managed to beat the United States Dollar (USD) following four straight weekly declines. However, it remains to be seen if the Greenback can continue to show resilience in the much-awaited US Federal Reserve’s (Fed) Jackson Hole Symposium week.

GBP/USD: What happened last week?

It was another week of US Dollar domination. Risk-aversion remained the main underlying theme throughout the week on the back of intensifying worries over China’s economic growth and concerns that the US Federal Reserve’s (Fed) could keep interest rates higher for longer.

Demand for safety boded well for the safe-haven US Dollar and helped it extend its uptrend. Further, the Greenback also capitalized on the US economic resilience showcased by encouraging macro data released during the week. US Retail Sales came out strong earlier this week. The Atlanta Federal Reserve’s GDPNow forecast model shows the American economy is seen growing at a 5.8% annualized rate in the third quarter. Meanwhile, the number of Americans filing new claims for unemployment benefits fell by 11,000 to 239,000 last week, indicating continued tightness in the labor market even as job growth slows.

Midweek, the hawkish Minutes of the Fed’s July meeting showed that "most" policymakers continued to pledge to tame inflation while seeing ‘upside risks’ to it, suggesting more upcoming rate hikes. In light of these hawkish Fed bets and upbeat US economic data, the US Treasury bond yields rallied to multi-month highs, with the benchmark 10-year Treasury bond yield hitting the highest level since October 2022 above 4.25%. The upsurge in the US Treasury bond yields and risk-off flows fuelled the Greenback, which kept the recovery attempts in the GBP/USD pair limited below 1.2800.

The Pound Sterling, however, maintained the buoyant tone amidst a firmer US Dollar, helped by increased expectations of more tightening by the Bank of England (BoE). Markets believe the BoE has room to deliver more interest rate hikes than the Fed, an assumption which kept sentiment underpinned around the GBP/USD pair.

Despite the UK unemployment rate jumping to a two-year high of 4.2% in the three months to June, wage growth accelerated to the strongest pace on record. Average earnings excluding bonuses rose 7.8% in the three months through June compared with a year ago, justifying the view that the central bank would have to resort to more tightening to tame inflation. Rapidly increasing wages are seen as one of the main factors behind sticky inflation.

Further, the United Kingdom's annual Consumer Price Index (CPI) rose 6.8% in July, softening its pace from a 7.9% increase registered in June. The print was the lowest level since February 2022. However, the Core CPI index (excluding volatile food and energy items) increased 6.9% YoY in the reported month, rising at the same pace as that seen in June. Sticky core inflation figures remain a worry for the Bank of England (BoE). After the UK CPI report, money markets priced that BoE rates would peak in the first half of 2024 near 5.95%, higher than the current Fed rate at 5.375%, which already seems to be the peak.

Toward the end of the week, the US Dollar registered a correction from two-month highs against its major peers, tracking the sharp pullback in US Treasury bond yields on persistent risk-off market mood. GBP/USD, however, struggled due to a bigger-than-expected drop in UK Retail Sales. British Retail Sales were 1.2% lower than in June against expectations of a 0.5% drop.

It’s the Jackson Hole Symposium week

Pound Sterling traders position for a quiet start to a busy week ahead, with the Federal Reserve’s annual Economic Policy Symposium held in Jackson Hole likely to take the center stage in the latter part of the week.  

Monday is devoid of relevant economic data from both sides of the Atlantic, and  Tuesday lacks any high-impact macro statistics. However, traders will look forward to the mid-tier United States Existing Home Sales data for some trading incentives.

On Wednesday, S&P Global will publish the August preliminary Manufacturing and Services PMI reports from the UK as well as the US. The PMI surveys could shed more light on their economic performance, impacting the market’s pricing of the BoE and the Fed policy outlooks. Later that day, the US docket will also feature the New Home Sales report.

Thursday will mark the first day of the Fed’s annual economic conference, spanning into the weekend. Several central bankers, finance ministers, academics and financial market experts from around the world attend the event. Comments and speeches from central bankers and other influential officials will cross the wires throughout the day, keeping volatility high.

Fed Chairman Jerome Powell will deliver the opening remarks. Markets will closely scrutinize his words for hints about the Fed rates outlook at its three remaining meetings this year. At the 2022 Jackson Hole Symposium Powell sent a clear message, backing a more restrictive policy in order to rein in inflation.

The US weekly Jobless Claims will also feature on Thursday, alongside the Durable Goods Orders data.  The UK calendar will see the only release of the CBI Realized Sales data. On Friday, there is no significant economic news from the UK, and therefore, the commentary from officials appearing at the Fed conference will continue to dominate the market action.

GBP/USD: Technical outlook

GBP/USD struggled to chew offers at the critical resistance near 1.2780, where the bullish 50-day Simple Moving Average (SMA) and the downward-sloping 21-day SMA hang around.

The 14-day Relative Strength Index (RSI) indicator remains below the 50 level, suggesting that the downside bias is likely to extend in the week ahead.

Further, the 21- and 50-day SMAs bearish crossover on Thursday continues to add credence to the bearish potential in the GBP/USD pair.

Deeper declines will prompt Pound Sterling sellers to target 1.2487, the June 12 low, below which a test of the 1.2400 round figure will be inevitable.

Alternatively, if the pair manages to find a foothold above the 21- and 50-day SMAs confluence near 1.2780, on a weekly closing basis, buyers could see an extended recovery toward 1.2850.

A sustained move above the latter could trigger a fresh uptrend toward the July 27 high of 1.2995.

GBP/USD: Forecast poll

FXStreet Forecast Poll points to a bullish tilt in the short-term outlook, with the one-week average target aligning near 1.2800. The one-month view remains slightly bullish as well.