GBP/USD Forecast: Sellers remain interested as Pound Sterling struggles to clear 1.2700

GBP/USD stays below 1.2700 after posting small gains on Monday.
The technical outlook suggests that the bearish bias remains intact.
The pair is likely to stay on the back foot unless risk mood improves.

GBP/USD benefited from the selling pressure surrounding the US Dollar (USD) in the second half of the day on Monday and registered modest gains. The pair, however, finds it difficult to hold above 1.2700 and the technical outlook suggests that the bearish bias remains unchanged in the near term.

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		0.44%	0.37%	0.66%	-0.06%	-0.07%	0.38%	-0.92%
EUR	-0.44%		-0.08%	0.24%	-0.50%	-0.50%	-0.06%	-1.36%
GBP	-0.37%	0.08%		0.30%	-0.43%	-0.45%	0.00%	-1.31%
JPY	-0.66%	-0.24%	-0.30%		-0.72%	-0.75%	-0.31%	-1.60%
CAD	0.06%	0.50%	0.43%	0.72%		-0.01%	0.43%	-0.88%
AUD	0.07%	0.50%	0.45%	0.75%	0.00%		0.45%	-0.88%
NZD	-0.38%	0.06%	-0.01%	0.31%	-0.43%	-0.45%		-1.30%
CHF	0.92%	1.36%	1.31%	1.60%	0.88%	0.88%	1.30%

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 positive shift seen in risk mood caused the USD to weaken against its major rivals in the American session on Monday. The Nasdaq Composite gained more than 1% and the S&P 500 rose nearly 0.8%.

The US Census Bureau will release Retail Sales data for May on Tuesday. Investors look for an increase of 0.2%. Unless there is a significant divergence from the market expectation, the reaction to this data could remain short-lived.

Meanwhile, market participants are likely to continue to pay close attention to comments from Federal Reserve officials and to changes in risk mood.

If policymakers leave the door open to a rate reduction in September, the USD could struggle to find demand and help GBP/USD hold its ground. In this scenario, risk flows are likely to continue to drive the action in markets and put additional weight on the USD's shoulders. On the other hand, investors could adopt a cautious stance in case officials voice their willingness to wait until the end of the year before considering a rate cut.

In the early European session on Wednesday, the UK's Office for National Statistics will release the inflation data for May.

GBP/USD Technical Analysis

GBP/USD stays below the lower limit of the ascending regression channel and the Relative Strength Index on the 4-hour chart remains well below 50, reflecting the bearish bias. On the downside, 1.2640 (Fibonacci 38.2% retracement of the latest uptrend) aligns as key support ahead of 1.2600 (psychological level, static level) and 1.2580 (Fibonacci 50% retracement).

Resistances could be seen at 1.2700, 1.2720 (Fibonacci 23.6% retracement) and 1.2750, where the 50-period Simple Moving Average (SMA) is located.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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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