GBP/USD Forecast: Pound Sterling turns bearish, closes in on important support
- GBP/USD continues to edge lower following Friday's sharp decline.
- Sellers could remain interested if Pound Sterling drops below 1.2700.
- The technical outlook points to a buildup of bearish momentum.
GBP/USD stays on the back foot and continues to edge lower toward 1.2700 in the European session on Monday. The pair's near-term technical outlook highlights a buildup of bearish momentum.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.93% | 0.33% | -0.24% | 1.08% | 1.00% | 0.48% | -0.73% | |
| EUR | -0.93% | -0.57% | -1.15% | 0.15% | -0.06% | -0.45% | -1.66% | |
| GBP | -0.33% | 0.57% | -0.52% | 0.72% | 0.59% | 0.07% | -1.09% | |
| JPY | 0.24% | 1.15% | 0.52% | 1.28% | 1.27% | 0.85% | -0.33% | |
| CAD | -1.08% | -0.15% | -0.72% | -1.28% | -0.11% | -0.59% | -1.80% | |
| AUD | -1.00% | 0.06% | -0.59% | -1.27% | 0.11% | -0.40% | -1.62% | |
| NZD | -0.48% | 0.45% | -0.07% | -0.85% | 0.59% | 0.40% | -1.24% | |
| CHF | 0.73% | 1.66% | 1.09% | 0.33% | 1.80% | 1.62% | 1.24% |
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).
GBP/USD came under heavy bearish pressure on Friday and erased all of its weekly gains. The US Dollar (USD) capitalized on the upbeat labor market data and forced the pair to push lower as investors reassessed the probability of a Federal Reserve (Fed) rate cut in September.
The US Bureau of Labor Statistics reported that Nonfarm Payrolls rose 272,000 in May. This reading beat analysts' estimate for an increase of 185,000 by a wide margin. Additionally, the annual wage inflation, as measured by the change in the Average Hourly Earnings, rose to 4.1% from 4% in April. According to the CME FedWatch Tool, the probability of the Fed leaving the policy rate unchanged in September rose slightly above 50% after the May jobs report from 40% earlier in the week.
On Tuesday, the UK's Office for National Statistics will release labor market data. More importantly, the US economic docket will feature Consumer Price Index (CPI) data for May before the Fed announces monetary policy decisions and releases the revised Summary of Projections later in the day. Ahead of these events, the risk perception could drive GBP/USD's action.
At the time of press, US stock index futures were down between 0.3% and 0.4%, suggesting that the USD could preserve its strength in the second half of the day with safe-haven flows dominating the markets.
GBP/USD Technical Analysis
GBP/USD dropped below the lower limit of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart fell below 40, reflecting the bearish shift in the short-term outlook.
The Fibonacci 23.6% retracement level of the latest uptrend aligns as immediate support at 1.2700. In case GBP/USD falls below this level and starts using it as resistance, sellers could target 1.2640 (100-day Simple Moving Average (SMA) and the 200-period SMA on the 4-hour chart) ahead of 1.2600 (psychological level, static level).
On the upside, resistances could be seen at 1.2730 (lower limit of the ascending channel, 100-period SMA) and 1.2800 (mid-point of the ascending channel, psychological level, 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, 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.
