GBP/USD Forecast: Pound Sterling correction could remain short-lived
- GBP/USD edges higher early Thursday after posting large losses on Wednesday.
- The pair could have a hard time discouraging sales until it flips 1.2640 into support.
- The cautious market mood could help the USD hold its ground.
GBP/USD lost 0.5% and touched its lowest level in over a month below 1.2620 on Wednesday. The pair stages a technical correction toward 1.2650 in the European morning on Thursday but the technical outlook doesn't offer any convincing signs pointing to an extended rebound.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.05% | -0.01% | 0.47% | -0.08% | -0.41% | 0.28% | 0.37% | |
| EUR | 0.05% | 0.06% | 0.57% | 0.02% | -0.34% | 0.41% | 0.49% | |
| GBP | 0.01% | -0.06% | 0.45% | -0.04% | -0.40% | 0.33% | 0.41% | |
| JPY | -0.47% | -0.57% | -0.45% | -0.53% | -0.83% | -0.13% | -0.11% | |
| CAD | 0.08% | -0.02% | 0.04% | 0.53% | -0.32% | 0.36% | 0.45% | |
| AUD | 0.41% | 0.34% | 0.40% | 0.83% | 0.32% | 0.72% | 0.82% | |
| NZD | -0.28% | -0.41% | -0.33% | 0.13% | -0.36% | -0.72% | 0.09% | |
| CHF | -0.37% | -0.49% | -0.41% | 0.11% | -0.45% | -0.82% | -0.09% |
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).
The US economic docket will feature the Bureau of Economic Analysis' (BEA) final revision to the annualized Gross Domestic Product (GDP) growth for the first quarter. The US Department of Labor will also release the weekly Initial Jobless Claims data, which is forecast to come in at 236,000 in the week ending June 22. A reading of 240,000, or higher, in the number of fist-time applications for unemployment benefits could remind investors of loosening labor market conditions and cause the US Dollar (USD) to weaken against its rivals.
In the meantime, US stock index futures trade modestly lower on the day. Market participants could stick to a cautious stance ahead of the first Presidential Debate between Donald Trump and Joe Biden later in the American session.
Although it's difficult to say how the debate could influence the action in markets, the USD is likely to benefit from risk aversion.
On Friday, the BEA will publish the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred gauge of inflation, for May.
GBP/USD Technical Analysis
The 100-day and the 50-day Simple Moving Averages (SMA) form a key pivot level at 1.2640. If GBP/USD fails to reclaim this level and starts using it as resistance, technical sellers could remain interested. In this scenario, 1.2600 (psychological level, static level), 1.2580 (Fibonacci 50% retracement) and 1.2550 (200-day SMA) could be seen as next bearish targets.
If GBP/USD manages to flip 1.2640 into support, 1.2675 (50-period SMA on the 4-hour chart) and 1.2710-1.2720 (200-period SMA, Fibonacci 23.6% retracement of the latest downtrend) could be seen as next resistance levels.
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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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
