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GBP/USD Weekly Forecast: Pound Sterling recaptures 200-DMA. What’s next?

  • GBP/USD briefly recaptured 1.2300, hitting its highest since June this year.
  • China’s reopening optimism and dovish Federal Reserve Chair Powell weigh on United States Dollar.
  • GBP/USD sees more room to the upside after reclaiming the critical 200-Daily Moving Average.

GBP/USD extended its four-week winning streak amid sustained United States Dollar (USD) weakness and risk-on market profile. The divergence in monetary policies between the US Federal Reserve (Fed) and the Bank of England (BoE) somewhat narrowed, providing extra zest to the Pound Sterling bulls. Attention now turns toward a relatively light week ahead, with a set of United States data on the cards.

GBP/USD bulls remained unstoppable amid US Dollar sell-off

The United States Dollar suffered its worst month since September 2010 in November and the weakness extended at the start of December, allowing GBP/USD to continue its ongoing bullish momentum. The US Dollar found some demand at the start of the week on intense risk-off flows on China’s Covid worries. Demonstrators protested in cities across China against President Xi Jinping’s Covid-zero policy, threatening the ruling Communist Party to step down. China’s reopening optimism, however, returned in the balance of the week, as the country relaxed restrictions in major cities and boosted elderly vaccinations campaigns. The return of risk flows collaborated with the US Dollar weakness, fuelled by the Federal Reserve November meeting minutes.

Meanwhile, the sell-off in the US Dollar gathered steam after US Federal Reserve Chairman Jerome Powell’s speech in the second half of the week. Powell delivered a clear message, signaling a 50 basis points (bps) rate hike next month. He said that it makes sense to moderate the pace of tightening, adding that slowing down at this point is a good way to balance risks. Markets priced in roughly 80% probability of a 50 bps rate increment this month.

Further, a slew of mixed high-tier United States economic data suggested an unhealthy state of the American economy, exacerbating the pain in the US Dollar while helping GBP/USD to  reclaim the 1.2300 level for the first time in six months. There were 10.3 million available jobs last month, down from nearly 10.7 million in September, the latest monthly Job Openings and Labor Turnover Survey (JOLTS) showed on Wednesday. Meanwhile, Pending Home Sales, a forward-looking market indicator, declined for the fifth consecutive month in October, falling by 37% YoY. The Federal Reserve’s preferred inflation gauge, the Core PCE Price Index, declined to 5% YoY in October vs. September’s 5.2%. The US ISM said its manufacturing PMI slipped to 49.0 in November from 50.2 in October, registering its first contraction since May 2020.

On the Britsh Pound side of the equation, it was a relatively quiet week data-wise and, therefore, the risk-on sentiment continued to favor Pound Sterling bulls. Also, the dovish Federal Reserve policy tightening outlook narrowed the divergence with the Bank of England’s (BoE), keeping the buoyant tone intact around the Cable. Several Bank of England policymakers crossed wires throughout the week but failed to have any material impact on the Pound Sterling. "United Kingdom labor market has turned out to be much more constrained than we thought, different to other countries,” Bank of England Governor (BoE) Andrew Bailey said while testifying on policy and inflation outlook before the Lords Economic Affairs Committee.

On Friday, the data published by the US Bureau of Labor Statistics revealed that Nonfarm Payrolls (NFP) rose by 263,000, beating the market expectation of 200,000 by a wide margin. Additionally, October's NFP print got revised higher to 284,000 from 261,000 and the annual wage inflation rose to 5.1% from 4.9%. The US Dollar Index staged a rebound on the upbeat jobs report and GBP/USD declined toward, erasing a portion of its weekly gains.

United States data eyed in a relatively quiet week ahead

The United Kingdom data docket is devoid of any high-impact economic data in the week ahead. Therefore, all eyes will be on the United States calendar amid the Federal Reserve’s ‘blackout period’ heading toward the central bank’s December 13-14 policy meeting. Risk sentiment will play a pivotal role following the OPEC and its allies (OPEC+) meeting this Sunday while China’s Covid developments will be also closely followed.

Besides, a fresh batch of macro economic data from China will also have a significant impact on the broader market sentiment. China will report its trade and inflation figures in the second half of the week.

The focus will be on Friday’s United States Producer Price Index (PPI), Preliminary University of Michigan (UoM) Consumer Sentiment and Inflation Expectations data for fresh signs on the state of the economy. 

GBP/USD technical outlook

GBP/USD's near-term technical outlook points to a bullish bias as the pair continues to trade within the ascending regression channel while holding comfortably above the 200-Daily MA. Additionally, the Relative Strength Index (RSI) indicator on the daily chart holds above 60, suggesting that the latest decline was a technical correction rather than a reversal of direction.

On the upside, 1.2300 (psychological level, static level) aligns as first static resistance ahead of 1.2400 (psychological level) and 1.2500 (psychological level, static level from June).

1.2150 (200-Daily MA, mid-point of the ascending regression channel) forms key support level. In case GBP/USD falls below that level and starts using it as resistance, additional losses toward 1.2000 (psychological level, lower-limit of the ascending regression channel) and 1.1900 (psychological level, static level) could be witnessed.

GBP/USD forecast poll

FXStreet Forecast Poll points to a slightly bullish bias for GBP/USD in the near term but the average one-week target is located at 1.2160. The one-month outlook remains overwhelmingly bullish despite the pair's four-week winning streak.

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Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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