GBP/USD Forecast: Pound Sterling struggles to clear key technical level
- GBP/USD stays below 1.2650 following Thursday's modest recovery.
- May PCE inflation data from the US could drive the USD's valuation on Friday.
- Quarter-end flows could trigger irregular movements in markets heading into the weekend.
Following Wednesday's sharp decline, GBP/USD registered modest gains on Thursday. The pair, however, failed to pull away from the key 1.2640 level, reflecting the buyers' hesitancy.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.03% | 0.05% | 0.58% | 0.08% | -0.12% | 0.71% | 0.65% | |
| EUR | 0.03% | 0.10% | 0.65% | 0.15% | -0.06% | 0.79% | 0.76% | |
| GBP | -0.05% | -0.10% | 0.51% | 0.06% | -0.16% | 0.69% | 0.66% | |
| JPY | -0.58% | -0.65% | -0.51% | -0.48% | -0.66% | 0.17% | 0.08% | |
| CAD | -0.08% | -0.15% | -0.06% | 0.48% | -0.20% | 0.63% | 0.60% | |
| AUD | 0.12% | 0.06% | 0.16% | 0.66% | 0.20% | 0.85% | 0.82% | |
| NZD | -0.71% | -0.79% | -0.69% | -0.17% | -0.63% | -0.85% | -0.04% | |
| CHF | -0.65% | -0.76% | -0.66% | -0.08% | -0.60% | -0.82% | 0.04% |
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).
Earlier in the day, the UK's Office for National Statistics reported that the annualized Gross Domestic Product (GDP) growth for the first quarter got revised higher to 0.3% from the 0.2% announced in the flash estimate. This data failed to trigger a noticeable market reaction.
Early Friday, GBP/USD trades in a relatively tight range below 1.2650. In the second half of the day, the US Bureau of Economic Analysis will release the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's (Fed) preferred gauge of inflation, for May.
On a monthly basis, the core PCE Price Index, which excludes volatile food and energy prices, is forecast to rise only 0.1% following the 0.2% increase recorded in April. A reading at or below the market expectation could feed into expectations for a Fed rate cut in September and hurt the USD. On the flip side, markets could turn reluctant to bet on a September policy pivot if the monthly core PCE Price Index rises 0.2% or more. In this scenario, GBP/USD could stay on the back foot.
Profit-taking and position adjustments on the last trading day of the second quarter could trigger sharp actions in currency pairs and distort the impact of the PCE inflation data on financial assets.
GBP/USD Technical Analysis
The 100-day and the 50-day Simple Moving Averages (SMA) form a key pivot level at 1.2640. If GBP/USD confirms this level as resistance, technical sellers could take action and open the door for an extended slide toward 1.2600 (psychological level, static level), 1.2580 (Fibonacci 50% retracement) and 1.2550 (200-day SMA).
On the upside, 1.2670 (50-period SMA on the 4-hour chart) aligns as interim resistance before 1.2710-1.2720 (200-period SMA, Fibonacci 23.6% retracement of the latest downtrend) in case GBP/USD starts using 1.2640 as support.
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.
