GBP/USD Forecast: Pound Sterling could face strong resistance at 1.2670

GBP/USD fluctuates near 1.2650 after posting moderate gains on Monday.
Strong resistance seems to have formed at 1.2670.
The pair's losses could remain limited unless market mood sours.

GBP/USD closed the first trading day of the week marginally higher but struggled to gather recovery momentum on Tuesday. As trading action turns subdued ahead of Wednesday's key inflation data from the US, the pair could have a difficult time making a decisive move in either direction.

After opening in negative territory, major equity indexes in the US recovered to end the day virtually unchanged on Monday. In turn, the US Dollar (USD) weakened slightly against its major rivals. Additionally, the Federal Reserve Bank of New York reported in its latest Survey of Consumer Expectations that the year-ahead inflation expectation remained unchanged at 3% March, not allowing the USD to gain traction.

Pound Sterling price this week

The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the strongest against the Swiss Franc.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.24%	-0.28%	-0.20%	-0.60%	0.12%	-0.62%	0.20%
EUR	0.24%		-0.03%	0.04%	-0.35%	0.36%	-0.37%	0.44%
GBP	0.27%	0.03%		0.07%	-0.33%	0.39%	-0.34%	0.42%
CAD	0.21%	-0.03%	-0.07%		-0.39%	0.32%	-0.40%	0.40%
AUD	0.60%	0.35%	0.33%	0.39%		0.71%	-0.01%	0.74%
JPY	-0.12%	-0.36%	-0.37%	-0.32%	-0.72%		-0.72%	0.04%
NZD	0.62%	0.36%	0.34%	0.40%	0.01%	0.72%		0.75%
CHF	-0.15%	-0.40%	-0.43%	-0.36%	-0.76%	-0.04%	-0.77%

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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

The US economic docket will feature NFIB Business Optimism Index for March and RealClearMarkets/TIPP Economic Optimism Index for April. These data are unlikely to trigger a noticeable market reaction. Investors could remain reluctant to take large positions before the US Bureau of Labor Statistics publishes the Consumer Price Index (CPI) data for March on Wednesday.

Meanwhile, US stock index futures trade mixed in the European session. Unless there is a bearish opening in Wall Street and a selloff in stocks, GBP/USD could hold its ground.

GBP/USD Technical Analysis

The 100-day, 50-day and the 20-day Simple Moving Averages (SMA) converge and form strong resistance at 1.2670 for GBP/USD. In case the pair clears that hurdle, technical buyers could take action and open the door to an extended uptrend toward 1.2710 (Fibonacci 50% retracement of the latest downtrend) and 1.2750 (Fibonacci 61.8% retracement).

On the downside, interim support is located at 1.2620 (Fibonacci 23.6% retracement) ahead of 1.2590 (200-day SMA).

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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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