GBP/USD Weekly Forecast: Pound Sterling pullback to pave the way for fresh uptrend
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UNLOCK OFFER- The Pound Sterling reached its highest level in a year versus the US Dollar, 1.3050 tested.
- GBP/USD appears to be a ‘buy-the-dips’ trade in the action-packed week ahead.
- Pound Sterling reverses from the overbought zone, implying more upside going forward.
The Pound Sterling (GBP) recorded a fresh 12-month high above 1.3000 against the US Dollar (USD) but the GBP/USD pair snapped its two consecutive weekly gains to settle in the red.
Pound Sterling briefly recaptured the key 1.3000 mark
Even though monetary policy divergence between the US Federal Reserve (Fed) and the Bank of England (BoE) remained the dominant factor driving the GBP/USD price action, the late comeback by the USD on broad risk aversion spoilt the party for the Pound Sterling.
GBP/USD extended the previous week’s upsurge and hit the highest level since July 2023 at 1.3045 after the UK Consumer Price Index (CPI) inflation bolstered expectations that the BoE would refrain from cutting interest rates in August. The UK CPI rose 2.0% in the year to June, having increased by 2.0% in May, according to the data released by the Office for National Statistics (ONS) on Wednesday, aligning with the market consensus while staying at the BoE’s 2.0% target. The sticky Services CPI inflation held steady at 5.7% YoY in the same period.
Meanwhile, markets fully priced in a September Fed rate cut, in light of softer inflation readings from the US and dovish Fed commentaries, especially the one from Chairman Jerome Powell. Powell said on Monday that the central bank will not wait until inflation hits 2% to lower interest rates. His appearance was the last one before the Fed entered its ‘blackout period’, fuelling a big market reaction.
The tide, however, turned in favor of the US Dollar buyers, helping the Greenback stage an impressive comeback in the latter part of the week. Wall Street witnessed a significant sell-off, as traders rotated away from high-priced megacap growth stocks amid the second-quarter earnings season. Further, escalating US-China trade tensions also aggravated risk-off sentiment, as markets remained wary of a further worsening of trade relations under a potential Donald Trump’s US presidency. A report that the US was considering tighter curbs on exports of advanced semiconductor technology to China sent chip stocks and the Nasdaq tumbling, per Reuters.
Resurgent US Dollar demand fuelled a sharp correction in the GBP/USD pair, sending it back under the 1.3000 threshold. Meanwhile, the UK labor market report showed Thursday that wage growth slowed to its lowest pace in nearly two years for the three months through May. The Unemployment Rate held steady at 4.4% in May, as anticipated. The wage inflation data prompted investors to ponder about the August rate cut, exerting additional downside pressure on the Pound Sterling.
The weak UK Retail Sales report also added to the gloom surrounding the GBP/USD pair. Retail Sales dropped 1.2% over the month in June after rebounding 2.9% in May, the latest data published by the ONS showed Friday. Markets projected a 0.4% decline in the reported month. The core Retail Sales, stripping the auto motor fuel sales, declined by 1.5% MoM, against the previous jump of 2.9% and the estimated -0.5% print.
Week ahead: A busy UK and US calendar
With the critical UK economic releases out of the way, US statistics will likely hog the limelight in the week ahead, impacting the GBP/USD price action.
It’s a typical quiet start to a big week, filled with high-impact in the second half. Monday is devoid of any important macro releases from both sides of the Atlantic. Therefore, speculations surrounding the Fed and BoE interest rate expectations and potential trade concerns will continue to have a pivotal role.
The mid-tier US Existing Home Sales is the only relevant data due on Tuesday. However, Wednesday will feature the preliminary S&P Global Manufacturing and Services PMI data from the UK and the US.
Meanwhile, the advance second-quarter Gross Domestic Product (GDP) data from the US will grab the eyeballs on Thursday. Markets will also look to the weekly Jobless Claims and Durable Goods Orders data that will be released parallelly that day.
The focus will then shift to Friday’s US core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, which will provide fresh cues on the interest rate outlook amid the Fed ‘blackout period’.
GBP/USD: Technical Outlook
Following a brief attempt to penetrate the 1.3000 level, the Pound Sterling continues to remain as a ‘buy-dips’ trade, as observed on the GBP/USD daily chart.
The 14-day Relative Strength Index (RSI) has reversed from the overbought territory to trade near 64, at the press time, suggesting that the upside risks remain intact.
However, if the GBP/USD correction from the 2024 highs gathers steam, the immediate cushion is seen at the throwback support from the March 8 high of 1.2894.
A sustained move below the latter will challenge the bullish commitments at the previous key resistance near 1.2800. At that level, the 21-day Simple Moving Average (SMA) converges.
Further south, the 50-day SMA at 1.2751 will be tested. Additional declines will call for a test of the June low of 1.2613.
On the upside, recapturing the 1.3000 key level on a weekly closing basis is critical to reviving the uptrend toward the yearly high of 1.3045.
If buyers gain a strong foothold above that level, a fresh run to the 1.3100 round figure and beyond cannot be ruled out.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
- The Pound Sterling reached its highest level in a year versus the US Dollar, 1.3050 tested.
- GBP/USD appears to be a ‘buy-the-dips’ trade in the action-packed week ahead.
- Pound Sterling reverses from the overbought zone, implying more upside going forward.
The Pound Sterling (GBP) recorded a fresh 12-month high above 1.3000 against the US Dollar (USD) but the GBP/USD pair snapped its two consecutive weekly gains to settle in the red.
Pound Sterling briefly recaptured the key 1.3000 mark
Even though monetary policy divergence between the US Federal Reserve (Fed) and the Bank of England (BoE) remained the dominant factor driving the GBP/USD price action, the late comeback by the USD on broad risk aversion spoilt the party for the Pound Sterling.
GBP/USD extended the previous week’s upsurge and hit the highest level since July 2023 at 1.3045 after the UK Consumer Price Index (CPI) inflation bolstered expectations that the BoE would refrain from cutting interest rates in August. The UK CPI rose 2.0% in the year to June, having increased by 2.0% in May, according to the data released by the Office for National Statistics (ONS) on Wednesday, aligning with the market consensus while staying at the BoE’s 2.0% target. The sticky Services CPI inflation held steady at 5.7% YoY in the same period.
Meanwhile, markets fully priced in a September Fed rate cut, in light of softer inflation readings from the US and dovish Fed commentaries, especially the one from Chairman Jerome Powell. Powell said on Monday that the central bank will not wait until inflation hits 2% to lower interest rates. His appearance was the last one before the Fed entered its ‘blackout period’, fuelling a big market reaction.
The tide, however, turned in favor of the US Dollar buyers, helping the Greenback stage an impressive comeback in the latter part of the week. Wall Street witnessed a significant sell-off, as traders rotated away from high-priced megacap growth stocks amid the second-quarter earnings season. Further, escalating US-China trade tensions also aggravated risk-off sentiment, as markets remained wary of a further worsening of trade relations under a potential Donald Trump’s US presidency. A report that the US was considering tighter curbs on exports of advanced semiconductor technology to China sent chip stocks and the Nasdaq tumbling, per Reuters.
Resurgent US Dollar demand fuelled a sharp correction in the GBP/USD pair, sending it back under the 1.3000 threshold. Meanwhile, the UK labor market report showed Thursday that wage growth slowed to its lowest pace in nearly two years for the three months through May. The Unemployment Rate held steady at 4.4% in May, as anticipated. The wage inflation data prompted investors to ponder about the August rate cut, exerting additional downside pressure on the Pound Sterling.
The weak UK Retail Sales report also added to the gloom surrounding the GBP/USD pair. Retail Sales dropped 1.2% over the month in June after rebounding 2.9% in May, the latest data published by the ONS showed Friday. Markets projected a 0.4% decline in the reported month. The core Retail Sales, stripping the auto motor fuel sales, declined by 1.5% MoM, against the previous jump of 2.9% and the estimated -0.5% print.
Week ahead: A busy UK and US calendar
With the critical UK economic releases out of the way, US statistics will likely hog the limelight in the week ahead, impacting the GBP/USD price action.
It’s a typical quiet start to a big week, filled with high-impact in the second half. Monday is devoid of any important macro releases from both sides of the Atlantic. Therefore, speculations surrounding the Fed and BoE interest rate expectations and potential trade concerns will continue to have a pivotal role.
The mid-tier US Existing Home Sales is the only relevant data due on Tuesday. However, Wednesday will feature the preliminary S&P Global Manufacturing and Services PMI data from the UK and the US.
Meanwhile, the advance second-quarter Gross Domestic Product (GDP) data from the US will grab the eyeballs on Thursday. Markets will also look to the weekly Jobless Claims and Durable Goods Orders data that will be released parallelly that day.
The focus will then shift to Friday’s US core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, which will provide fresh cues on the interest rate outlook amid the Fed ‘blackout period’.
GBP/USD: Technical Outlook
Following a brief attempt to penetrate the 1.3000 level, the Pound Sterling continues to remain as a ‘buy-dips’ trade, as observed on the GBP/USD daily chart.
The 14-day Relative Strength Index (RSI) has reversed from the overbought territory to trade near 64, at the press time, suggesting that the upside risks remain intact.
However, if the GBP/USD correction from the 2024 highs gathers steam, the immediate cushion is seen at the throwback support from the March 8 high of 1.2894.
A sustained move below the latter will challenge the bullish commitments at the previous key resistance near 1.2800. At that level, the 21-day Simple Moving Average (SMA) converges.
Further south, the 50-day SMA at 1.2751 will be tested. Additional declines will call for a test of the June low of 1.2613.
On the upside, recapturing the 1.3000 key level on a weekly closing basis is critical to reviving the uptrend toward the yearly high of 1.3045.
If buyers gain a strong foothold above that level, a fresh run to the 1.3100 round figure and beyond cannot be ruled out.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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