GBP/USD Forecast: Pound Sterling rebounds but remains fragile

GBP/USD recovered above 1.2700 after posting large losses on Wednesday.
US stock index futures trade deep in negative territory early Thursday.
US economic docket will feature weekly Jobless Claims and Q1 GDP revision.

GBP/USD turned south in the American session on Wednesday and lost 0.5%, posting ts largest one-day loss since late April. Although the pair managed to recover above 1.2700 in the European morning on Thursday, it might have a difficult time gathering bullish momentum.

The negative shift seen in market mood helped the US Dollar (USD) find demand as a safe-haven and caused GBP/USD to push lower. Reflecting the risk-averse atmosphere, Wall Street's main indexes lost between 0.7% and 1.05%.

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 Swiss Franc.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.32%	0.20%	-0.06%	0.40%	0.26%	0.23%	-0.79%
EUR	-0.32%		-0.14%	-0.32%	0.12%	-0.11%	-0.18%	-1.08%
GBP	-0.20%	0.14%		-0.26%	0.20%	0.04%	0.03%	-0.97%
JPY	0.06%	0.32%	0.26%		0.43%	0.31%	0.39%	-0.75%
CAD	-0.40%	-0.12%	-0.20%	-0.43%		-0.16%	-0.19%	-1.25%
AUD	-0.26%	0.11%	-0.04%	-0.31%	0.16%		0.01%	-1.00%
NZD	-0.23%	0.18%	-0.03%	-0.39%	0.19%	-0.01%		-1.03%
CHF	0.79%	1.08%	0.97%	0.75%	1.25%	1.00%	1.03%

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).

Early Thursday, US stock index futures lose between 0.4% and 0.8%, suggesting that the selloff in US stocks could continue after the opening bell. In case safe-haven flows dominate the action in the second half of the day, the USD could gather further strength and force GBP/USD to stay on the back foot.

The US economic calendar will feature the weekly Initial Jobless Claims data. Investors expect the number of first-time applications for unemployment benefits to come in at 218,000 in the week ending May 25. A reading near 200,000 could support the USD, while a print at or above 230,000 could weigh on the USD with the immediate reaction.

The US Bureau of Economic Analysis (BEA) will release its second-estimate of the first-quarter Gross Domestic Product growth. In the initial estimate, the BEA reported that the US economy expanded at an annual rate of 1.6% in Q1. Investors see the BEA revising this data lower to 1.3%. A bigger downward revision could make it difficult for the USD to find demand.

GBP/USD Technical Analysis

GBP/USD edged higher after testing the lower limit of the ascending regression channel. The Relative Strength Index (RSI) indicator on the 4-hour chart, however, remains below 50, pointing to a lack of recovery momentum.

On the downside, 1.2680 (lower limit of the ascending channel) aligns as immediate support before 1.2650 (100-period Simple Moving Average (SMA) on the 4-hour chart) and 1.2630 (100-day SMA).

First resistance aligns at 1.2760-1.2750 (Fibonacci 78.6% retracement of the latest downtrend, mid-point of the ascending regression channel). If GBP/USD rises above this region and starts using it as support, it could stretch higher toward 1.2800 (psychological level, static level).

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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