GBP/USD Weekly Forecast: Pound Sterling consolidates before the next leg lower
- The Pound Sterling consolidated its correction from seven-month highs against the US Dollar.
- GBP/USD looks vulnerable heading into another holiday-shortened week.
- The Pound Sterling could keep an eye on 1.2400, with a bearish channel in play and RSI below 50.00.
The Pound Sterling (GBP) remained defensive against the US Dollar (USD) for the third consecutive week, as the GBP/USD entered a downside consolidation phase below 1.2700.
Pound Sterling suffers from renewed USD demand
The US Dollar extended its late last week’s recovery momentum against its major counterparts, although a holiday-shortened week and an end to the first quarter of 2024 left GBP/USD restricted in a 100-pips range during the week.
The rekindling of geopolitical tensions between Russia and Ukraine combined with fairly hawkish commentaries from US Federal Reserve (Fed) policymakers continued to support the US Dollar.
Of the Fedspeak, Fed Governor Christopher Waller’s comments stood out, as Waller said early Thursday that “there is no rush to cut the policy rate,” adding that the “Fed may need to maintain current rate target for longer than expected.” Chicago Fed President Austan Goolsbee said on Monday that they are “in a bit of a murky period,” as “the main puzzle with inflation is housing.”
Markets are now pricing about a 64% probability that the Fed will begin cutting rates in June, according to CMEGroup’s FedWatch Tool, down from a 70% chance seen at the start of the week.
On the other hand, the Pound Sterling failed to capitalize on hawkish remarks from the Bank of England (BoE) officials. BoE policymaker Catherine Mann noted on Tuesday that “markets are pricing in too many cuts to rates.” Meanwhile, the BoE rate-setter Jonathan Haskel warned against rushing to cut interest rates on Thursday.
On the data front, US Durable Goods Orders released on Tuesday show a 1.4% rise in February, against the 6.9% slump reported in January. The annualized US Gross Domestic Product (GDP) was revised upward on Thursday from 3.2% to 3.4% in the fourth quarter. On Friday, the US Personal Consumption Expenditures (PCE) Price Index rose at an annual rate of 2.5% in February, as expected, while the Fed’s preferred inflation measure, the core PCE Price Index, grew at a slightly slower pace of 2.8% YoY in the same period after January’s upward revision to 2.9%.
Besides economic statistics, the main fundamental driver behind the Greenback’s resilience was the price action around the USD/JPY pair. Heightened risks of Japan’s forex market intervention smashed the Japanese Yen to a 34-year low against the US Dollar. In turn, it put a lid on the GBP/USD upside attempts.
Easter Monday makes up for a light week ahead
Pound Sterling traders head into another holiday-shortened week, as most major economies celebrate Easter Monday. Also, clocks move backward in the United Kingdom to summer time.
However, the United States will report the S&P Global final Manufacturing PMI, followed by the ISM Manufacturing PMI on Monday. Tuesday will feature the final Manufacturing PMI from the UK and the closely watched US JOLTS Job Openings survey findings.
Wednesday’s ADP Employment Change data and the ISM Services PMI report are also likely to hog the limelight ahead of the high-impact Nonfarm Payrolls data on Friday.
In the meantime, GBP/USD will take some cues from the US weekly Jobless Claims data, as the UK economic calendar remains data-dry that day.
Apart from these statistics on both sides of the Atlantic, speeches from several Fed policymakers will continue to influence the Fed interest rate expectations, eventually impacting the value of the US Dollar and the currency pair.
GBP/USD: Technical Outlook
From a short-term technical perspective, GBP/USD is likely to extend the downside break from the rising channel into another week, as the 14-day Relative Strength Index (RSI) continues to hold below the midline near 40.00, pointing to more weakness ahead.
However, Pound Sterling sellers need to crack the horizontal 200-day Simple Moving Average (SMA) at 1.2589 on a decisive basis to resume the correction from seven-month highs in GBP/USD.
Acceptance below the latter will expose the mid-February low near 1.2540, followed by the 1.2500 round figure. If the selling pressure intensifies on a break below the latter, a test of the 1.2400 mark cannot be ruled out.
Should the 1.2540 support area hold the fort, GBP/USD could attempt a decent comeback toward the confluence zone of the 100-day and 50-day SMA around 1.2660.
The next topside target is seen at the channel-support-turned resistance at 1.2700. Further up, the pair could run into offers at the 21-day SMA at 1.2720. A sustained move above it will challenge the weekly top at 1.2803.
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.