GBP/USD Forecast: Pound Sterling stabilizes above key support after inflation data
- GBP/USD trades above 1.2700 in the European session on Wednesday.
- Annual inflation in the UK declined to 2% as forecast.
- Technical sellers could stay on the sidelines while the pair holds above 1.2700.
GBP/USD gained traction in the European session on Wednesday after closing slightly above 1.2700 on Tuesday. The pair's technical outlook suggests that buyers could remain interested while 1.2700 holds as support.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.00% | -0.16% | 0.03% | -0.03% | -0.19% | 0.13% | 0.04% | |
| EUR | -0.00% | -0.17% | 0.02% | -0.04% | -0.19% | 0.14% | 0.06% | |
| GBP | 0.16% | 0.17% | 0.22% | 0.14% | -0.02% | 0.31% | 0.22% | |
| JPY | -0.03% | -0.02% | -0.22% | -0.06% | -0.22% | 0.11% | 0.03% | |
| CAD | 0.03% | 0.04% | -0.14% | 0.06% | -0.16% | 0.17% | 0.08% | |
| AUD | 0.19% | 0.19% | 0.02% | 0.22% | 0.16% | 0.34% | 0.26% | |
| NZD | -0.13% | -0.14% | -0.31% | -0.11% | -0.17% | -0.34% | -0.09% | |
| CHF | -0.04% | -0.06% | -0.22% | -0.03% | -0.08% | -0.26% | 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 UK's Office for National Statistics reported on Wednesday that inflation in the UK, as measured by the change in the Consumer Price Index (CPI), declined to 2% on a yearly basis in May from 2.3% in April. This reading came in line with the market expectation. In the same period, the core CPI, which excludes volatile food and energy prices, rose 3.5%, at a softer pace than the 3.9% increase recorded in April.
The Bank of England (BoE) will announce monetary policy decisions on Thursday. Following the announcement of the July 4 election in the UK, the BoE cancelled all the public appearances. Hence, the BoE is widely expected to keep the policy settings unchanged despite these inflation readings and wait until after election to take a policy step.
Bond and stock markets in the US will remain closed in observance of the Juneteenth Holiday on Wednesday. As a result, the action in foreign exchange markets could stay subdued in the second half of the day.
Economic Indicator
BoE Interest Rate Decision
The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.
Read more.Next release: Thu Jun 20, 2024 11:00
Frequency: Irregular
Consensus: 5.25%
Previous: 5.25%
Source: Bank of England
GBP/USD Technical Analysis
GBP/USD returned within the ascending regression channel by rising above 1.2700 and the Relative Strength Index (RSI) indicator on the 4-hour chart rose above 50, reflecting sellers' hesitancy.
On the upside, the 100-period Simple Moving Average (SMA) aligns as first resistance at 1.2750 before 1.2800 (psychological level, static level) and 1.2830 (mid-point of the ascending channel). Supports are located at 1.2700 (lower limit of the ascending channel), 1.2680 (200-period SMA) and 1.2640 (100-day SMA).
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.
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
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.
