GBP/USD Forecast: Pound Sterling struggles to preserve bullish momentum
- GBP/USD declined below 1.2800 after posting strong gains on Monday.
- The near-term technical outlook points to a loss of bullish momentum.
- Investors await April JOLTS Job Openings data from the US.
GBP/USD gathered bullish momentum and reached its strongest level since mid-March above 1.2800 on Monday. The pair, however, lost its traction and declined toward 1.2750 in the European session on Tuesday.
The US Dollar (USD) came under heavy selling pressure in the American session on Monday after the data showed that the ISM Manufacturing PMI dropped to 48.7 in May from 49.2 in April. This reading showed that the economic activity in the manufacturing sector continued to contract at a fastening pace. Moreover, the inflation component of the PMI survey, the Prices Paid Index, fell to 57 from 60.9.
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 strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.17% | -0.13% | -1.50% | 0.47% | 0.28% | -0.35% | -1.13% | |
| EUR | 0.17% | 0.07% | -1.35% | 0.64% | 0.32% | -0.18% | -0.97% | |
| GBP | 0.13% | -0.07% | -1.34% | 0.57% | 0.32% | -0.31% | -1.06% | |
| JPY | 1.50% | 1.35% | 1.34% | 1.96% | 1.84% | 1.30% | 0.53% | |
| CAD | -0.47% | -0.64% | -0.57% | -1.96% | -0.22% | -0.82% | -1.61% | |
| AUD | -0.28% | -0.32% | -0.32% | -1.84% | 0.22% | -0.51% | -1.32% | |
| NZD | 0.35% | 0.18% | 0.31% | -1.30% | 0.82% | 0.51% | -0.84% | |
| CHF | 1.13% | 0.97% | 1.06% | -0.53% | 1.61% | 1.32% | 0.84% |
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 Tuesday, the USD benefits from the souring market mood and forces GBP/USD to stay on the back foot. At the time of press, US stock index futures were down 0.6% on a daily basis.
In the second half of the day, the US Bureau of Labor Statistics will publish the JOLTS Job Openings data for April. Investors forecast the number of job openings to decline slightly to 8.34 million from 8.48 million in March. A soft reading at or below 8 million could weigh on the USD and help GBP/USD turn north. On the other hand, a positive surprise could cause the pair to extend its daily slide.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart dropped to 50, reflecting the loss of bullish momentum. GBP/USD trades in the lower half of the ascending channel and faces immediate support at 1.2750, where the 20-period and the 50-period Simple Moving Averages (SMA) are located. If the pair falls below this level, 1.2700 (lower limit of the ascending channel) could be seen as next support before 1.2680 (20-day SMA).
On the upside, resistances align at 1.2800 (mid-point of the ascending channel), 1.2850 (static level) and 1.2880 (upper limit of the ascending channel).
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.
