GBP/USD Forecast: Pound Sterling could test 1.2640 next
- GBP/USD stays under modest bearish pressure and trades below 1.2700.
- The pair could face next important support at 1.2640.
- Risk perception and Fedspeak could drive the pair's action on Monday.
GBP/USD declined sharply on Friday and closed the previous week in negative territory. The pair struggles to gain traction on Monday and trades modestly lower on the day below 1.2700 in the European session.
British Pound PRICE Last 7 days
The table below shows the percentage change of British Pound (GBP) against listed major currencies last 7 days. British Pound was the weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.90% | 0.46% | 0.49% | -0.09% | -0.32% | -0.23% | -0.60% | |
| EUR | -0.90% | -0.09% | -0.15% | -0.72% | -0.94% | -0.86% | -1.23% | |
| GBP | -0.46% | 0.09% | 0.06% | -0.64% | -0.85% | -0.78% | -1.14% | |
| JPY | -0.49% | 0.15% | -0.06% | -0.58% | -0.89% | -0.83% | -1.04% | |
| CAD | 0.09% | 0.72% | 0.64% | 0.58% | -0.20% | -0.14% | -0.51% | |
| AUD | 0.32% | 0.94% | 0.85% | 0.89% | 0.20% | 0.08% | -0.30% | |
| NZD | 0.23% | 0.86% | 0.78% | 0.83% | 0.14% | -0.08% | -0.37% | |
| CHF | 0.60% | 1.23% | 1.14% | 1.04% | 0.51% | 0.30% | 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).
The broad-based US Dollar (USD) strength weighed on GBP/USD in the second half of last week. Although soft inflation data from the US revived expectations for a Federal Reserve (Fed) rate cut in September, the negative shift seen in risk mood helped the USD outperform its rivals.
The US economic calendar will not offer any data releases that could impact the pair's action in the American session. Hence, investors are likely to remain focused on risk perception and comments from Fed officials.
In the European session, US stock index futures trade mixed. Dow Futures are down 0.15% on the day, while Nasdaq Futures gain nearly 0.2%. In case Wall Street's main indexes struggle to find direction, GBP/USD could have a hard time staging a rebound.
Minneapolis Fed President Neel Kashkari said on Sunday that it is a “reasonable prediction” that the Fed will wait until December to cut interest rates. He further elaborated by noting that the central bank is in a very good position to get more data before making any decisions.
The CME FedWatch Tool shows that the probability of the Fed leaving the policy unchanged in September dropped to 33.3% from nearly 50% early last week, before the inflation data release. If more Fed policymakers voice willingness to wait until the end of the year before lowering the policy rate, the USD is likely to stay resilient against its major rivals. On the flip side, the risk mood could improve and GBP/USD stretch higher if Fed officials lean toward a policy pivot in September.
GBP/USD Technical Analysis
On the downside, 1.2640 (Fibonacci 38.2% retracement of the latest uptrend) aligns as next support before 1.2600 (psychological level, static level) and 1.2580 (Fibonacci 50% retracement).
GBP/USD could face interim resistance at 1.2700 before 1.2720, where the lower limit of the ascending channel meets the Fibonacci 23.6% retracement. In case the pair manages to stabilize above the latter, the 50-period Simple Moving Average (SMA) on the 4-hour chart could be seen as next recovery target at 1.2750.
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.
