GBP/USD Weekly Forecast: Pound Sterling set to extend gains during Thanksgiving week

After a down week, Pound Sterling buyers fought back control against the United States Dollar (USD), sending GBP/USD briefly above 1.2500 to a two-month high. The upside potential in the pair remains at the mercy of the central banks’ expectations, and the top-tier business PMIs data due in the upcoming week.

GBP/USD: What happened last week?

A US economic data-dominated week cemented expectations that the US Federal Reserve (Fed) is done with its interest rate hiking cycle. The market sentiment surrounding the Fed policy expectations kept the US Dollar in the back seat alongside US Treasury bond yields, helping the GBP/USD pair regain some of the lost ground.

The latest batch of soft US economic data bolstered hopes of an extended Fed pause, with markets pricing interest rate cuts by May next year. Earlier in the week, the US Producer Price Index (PPI) fell the most in three-and-a-half years in October. The US Consumer Price Index (CPI) inflation fell to 3.2% YoY in October from 3.7% in the previous month. Additionally, Retail Sales, which are adjusted for seasonality but not inflation, fell 0.1% in October from the prior month. Meanwhile, US Initial Jobless Claims rose to a seasonally adjusted 231,000 for the week ended November 11.

The US Dollar Index tumbled to two-month lows of 103.98 as the benchmark 10-year US Treasury bond yields fell below 4.50%, sending GBP/USD to over two-month highs at 1.2506.

A sharp cool down in the UK CPI inflation also failed to deter Pound Sterling buyers, as the pair remained at the mercy of the US Dollar dynamics. The UK CPI rose 4.6% from a year earlier in October, down sharply from the 6.7% rate in September and registering the slowest pace since 2021, the Office for National Statistics said Wednesday.

Meanwhile, the UK ILO Unemployment Rate held steady at 4.2% in the quarter to September. Additional details showed that the number of people claiming jobless benefits climbed by 17.8K in September when compared to the previous jump of 20.4K. Average Earnings Excluding Bonus rose 7.7% 3M YoY in September, in line with expectations and below the 7.9% increase registered in August. Following the top-tier UK data releases, market participants added to their bets on the Bank of England (BoE) cutting interest rate next year, with three 25 basis points (bps) reductions in Bank Rate fully priced in by December 2024 and a first cut fully priced in for June.

However, in the latter part of the week, the tide turned against Pound Sterling after the US Dollar found a floor due to resurfacing China’s property market concerns and US-Sino trade tensions. China's Commerce Minister expressed concern over US restrictions on semiconductor exports to China, as well as sanctions on Chinese firms and tariffs on the country’s imports, during his meeting with the US Commerce Secretary Gina Raimondo on Thursday.

The sharp decline in the USD/JPY pair on Friday, courtesy of the sustained weakness in the US Treasury bond yields, saved the day for GBP/USD, as it sparked a fresh US Dollar selling wave across the board. This move offset the GBP/USD decline fueled by weak UK Retail Sales. The UK retail trade volume fell by 0.3% in October, hitting the lowest level since February 2021, when large parts of the UK were in covid lockdowns.

Thanksgiving week ahead: Fed Minutes and Preliminary PMIs eyed

It’s a holiday-shortened week ahead, as American traders will be celebrating Thanksgiving Day on Thursday, which could lead to minimal volatility and thin trading heading into Black Friday.

At the start of the week on Monday, BoE Governor Andrew Bailey is due to speak at the Henry Plumb memorial lecture. However, Bailey is unlikely to touch upon the topic of monetary policy in his speech. The US economic docket is devoid of any relevant data releases that day.

Traders will look forward to the Minutes of the Federal Reserve’s November meeting and the US Existing Home Sales on Tuesday for any impact on the US Dollar valuations and thus, on the pair.

Wednesday will be a busy day, with a couple of top-tier US data releases in the Jobless Claims and Durable Goods Orders. Also of note will be the UK Autumn Statement and BoE monetary policy report hearings, which could ramp up the volatility around the Pound Sterling.

On Thanksgiving Thursday, Pound Sterling traders will watch out for the preliminary Manufacturing and Services PMI reports from the United Kingdom. Meanwhile, for the US, the S&P Global preliminary Manufacturing and Services PMIs will be published on Friday.

Furthermore, speeches from the Federal Reserve policymakers will be closely followed by market participants for fresh hints on the US interest rate outlook.

GBP/USD: Technical outlook

From a short-term technical perspective, the bias appears to remain in favor of Pound Sterling buyers, as the 14-day Relative Strength Indicator (RSI) holds comfortably above the 50 level.

Adding credence to the bullish potential, the 21-day Simple Moving Average (SMA) is on the verge of crossing the 50-day SMA from below. If that happens on a weekly closing basis, it would validate a Bull Cross.

Should the upside momentum regain traction above the 200-day SMA at 1.2443, Pound Sterling buyers could flex their muscles toward the 100-day SMA at 1.2508. The next upside target is seen at the 1.2600 round level en route to the September high of 1.2713.

On the downside, key confluence at 1.2255 could come to the rescue of buyers. That level is the intersection of the 21- and 50-day SMAs. A sustained break below the latter could trigger a fresh downswing toward the 1.2100 demand area.  The seven-month low of 1.2037 will be the last line of defense for Pound Sterling. 

GBP/USD: Forecast poll