GBP/USD Forecast: Pound Sterling finds support but struggles to rebound
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UPGRADE- GBP/USD trades in a tight range slightly below 1.3100 on Wednesday.
- August inflation data from the US will be scrutinized by investors.
- Disappointing data releases from the UK don't allow Pound Sterling to gather strength.
Following Tuesday's indecisive action, GBP/USD struggles to make a decisive move in either direction and trades in a tight channel slightly below 1.3100. August inflation data from the US could trigger the next big action in the pair.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.41% | 0.36% | -0.47% | 0.16% | 0.17% | 0.54% | 0.18% | |
| EUR | -0.41% | -0.10% | -0.83% | -0.25% | -0.29% | 0.15% | -0.25% | |
| GBP | -0.36% | 0.10% | -0.85% | -0.14% | -0.18% | 0.23% | -0.15% | |
| JPY | 0.47% | 0.83% | 0.85% | 0.62% | 0.65% | 1.00% | 0.84% | |
| CAD | -0.16% | 0.25% | 0.14% | -0.62% | 0.05% | 0.37% | 0.18% | |
| AUD | -0.17% | 0.29% | 0.18% | -0.65% | -0.05% | 0.41% | 0.00% | |
| NZD | -0.54% | -0.15% | -0.23% | -1.00% | -0.37% | -0.41% | -0.37% | |
| CHF | -0.18% | 0.25% | 0.15% | -0.84% | -0.18% | -0.01% | 0.37% |
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 the US Dollar (USD) stays under bearish pressure in the European session on Wednesday, GBP/USD finds it difficult to gain traction, with the latest data releases from the UK disappointing market participants.
The UK's Office for National Statistics reported early Wednesday that Industrial Production and Manufacturing Production declined by 0.8% and 1%, respectively, on a monthly basis in July. Both of these prints fell short of analysts' estimates. Other data from the UK showed that the monthly Gross Domestic Product (GDP) was unchanged in July.
In the second half of the day, the US Bureau of Labor Statistics will publish the Consumer Price Index (CPI) data for August. Investors are likely to react to a surprise in the monthly core CPI reading, which is not distorted by base effects and excludes volatile food and energy prices.
Markets expect an increase of 0.2% in the monthly core CPI in August. A stronger-than-forecast reading could provide a boost to the USD and pave the way for another leg lower in GBP/USD. On the flip side, investors could reassess the probability of a 50 basis points (bps) Federal Reserve rate cut in September, which currently stands at 35% according to the CME FedWatch Tool, on a soft print and cause the USD to come under renewed selling pressure.
GBP/USD Technical Analysis
GBP/USD stays below the 20-period, 50-period and 100-period Simple Moving Averages (SMA) on the 4-hour chart, while the Relative Strength Index (RSI) indicator stays near 40, suggesting that the bearish bias remains intact.
GBP/USD could meet first support at 1.3040 (Fibonacci 38.2% retracement level of the latest uptrend) before 1.3000 (psychological level, static level) and 1.2970 (Fibonacci 50% retracement, 200-period SMA).
On the upside, interim resistance is located at 1.3100 (static level) ahead of 1.3130 (50-period SMA, 100-period SMA) and 1.3200 (psychological level, static level).
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.
- GBP/USD trades in a tight range slightly below 1.3100 on Wednesday.
- August inflation data from the US will be scrutinized by investors.
- Disappointing data releases from the UK don't allow Pound Sterling to gather strength.
Following Tuesday's indecisive action, GBP/USD struggles to make a decisive move in either direction and trades in a tight channel slightly below 1.3100. August inflation data from the US could trigger the next big action in the pair.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.41% | 0.36% | -0.47% | 0.16% | 0.17% | 0.54% | 0.18% | |
| EUR | -0.41% | -0.10% | -0.83% | -0.25% | -0.29% | 0.15% | -0.25% | |
| GBP | -0.36% | 0.10% | -0.85% | -0.14% | -0.18% | 0.23% | -0.15% | |
| JPY | 0.47% | 0.83% | 0.85% | 0.62% | 0.65% | 1.00% | 0.84% | |
| CAD | -0.16% | 0.25% | 0.14% | -0.62% | 0.05% | 0.37% | 0.18% | |
| AUD | -0.17% | 0.29% | 0.18% | -0.65% | -0.05% | 0.41% | 0.00% | |
| NZD | -0.54% | -0.15% | -0.23% | -1.00% | -0.37% | -0.41% | -0.37% | |
| CHF | -0.18% | 0.25% | 0.15% | -0.84% | -0.18% | -0.01% | 0.37% |
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 the US Dollar (USD) stays under bearish pressure in the European session on Wednesday, GBP/USD finds it difficult to gain traction, with the latest data releases from the UK disappointing market participants.
The UK's Office for National Statistics reported early Wednesday that Industrial Production and Manufacturing Production declined by 0.8% and 1%, respectively, on a monthly basis in July. Both of these prints fell short of analysts' estimates. Other data from the UK showed that the monthly Gross Domestic Product (GDP) was unchanged in July.
In the second half of the day, the US Bureau of Labor Statistics will publish the Consumer Price Index (CPI) data for August. Investors are likely to react to a surprise in the monthly core CPI reading, which is not distorted by base effects and excludes volatile food and energy prices.
Markets expect an increase of 0.2% in the monthly core CPI in August. A stronger-than-forecast reading could provide a boost to the USD and pave the way for another leg lower in GBP/USD. On the flip side, investors could reassess the probability of a 50 basis points (bps) Federal Reserve rate cut in September, which currently stands at 35% according to the CME FedWatch Tool, on a soft print and cause the USD to come under renewed selling pressure.
GBP/USD Technical Analysis
GBP/USD stays below the 20-period, 50-period and 100-period Simple Moving Averages (SMA) on the 4-hour chart, while the Relative Strength Index (RSI) indicator stays near 40, suggesting that the bearish bias remains intact.
GBP/USD could meet first support at 1.3040 (Fibonacci 38.2% retracement level of the latest uptrend) before 1.3000 (psychological level, static level) and 1.2970 (Fibonacci 50% retracement, 200-period SMA).
On the upside, interim resistance is located at 1.3100 (static level) ahead of 1.3130 (50-period SMA, 100-period SMA) and 1.3200 (psychological level, static level).
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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