GBP/USD Forecast: Pound Sterling recovers above key technical level
- GBP/USD recovers to the 1.2650 area in the European session on Monday.
- The technical picture is yet to point to a buildup of bullish momentum.
- UK and US PMI data will be watched closely by market participants.
After ending the previous week on a bearish note, GBP/USD gains traction and rises to the 1.2650 area in the European morning on Monday. Preliminary December Manufacturing and Services PMI data from the UK and the US will be watched closely by market participants.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.47% | 0.74% | 2.55% | 0.50% | 0.26% | 0.99% | 1.36% | |
| EUR | -0.47% | 0.28% | 2.20% | 0.11% | -0.12% | 0.59% | 0.97% | |
| GBP | -0.74% | -0.28% | 1.73% | -0.17% | -0.40% | 0.31% | 0.68% | |
| JPY | -2.55% | -2.20% | -1.73% | -2.03% | -2.14% | -1.65% | -1.08% | |
| CAD | -0.50% | -0.11% | 0.17% | 2.03% | -0.19% | 0.48% | 0.86% | |
| AUD | -0.26% | 0.12% | 0.40% | 2.14% | 0.19% | 0.71% | 1.08% | |
| NZD | -0.99% | -0.59% | -0.31% | 1.65% | -0.48% | -0.71% | 0.36% | |
| CHF | -1.36% | -0.97% | -0.68% | 1.08% | -0.86% | -1.08% | -0.36% |
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 disappointing monthly Gross Domestic Product (GDP), Industrial and Manufacturing Production data from the UK caused Pound Sterling to come under renewed selling pressure on Friday. Early Monday, the improving risk sentiment helps GBP/USD edge higher.
In case the S&P Global/CIPS Composite PMI from the UK comes in below 50 and shows contraction in the private sector's business activity, GBP/USD could have a difficult time extending its recovery.
In the American session, S&P Global PMI could trigger a short-lasting market reaction. Positive surprises in either Manufacturing or Services PMI readings could support the US Dollar (USD). Nevertheless, investors are unlikely to take large positions ahead of the Federal Reserve's (Fed) and the Bank of England's (BoE) monetary policy announcements on Wednesday and Thursday, respectively.
GBP/USD Technical Analysis
GBP/USD rose above 1.2620, where the Fibonacci 23.6% retracement of the latest downtrend is located. However, the Relative Strength Index (RSI) indicator on the 4-hour chart is yet to recover above 50, reflecting buyers' hesitancy.
On the upside, 1.2680 (100-period Simple Moving Average (SMA), 50-period SMA) aligns as next resistance before 1.2700 (Fibonacci 38.2% retracement) and 1.2740 (200-period SMA). In case GBP/USD retreats below 1.2620, 1.2600 (round level, static level) could act as interim support before 1.2530 (static level).
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, also known as ‘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.
