GBP/USD rose more than 0.31% during Friday’s North American session on stronger-than-expected retail sales and PMI data, even as the US dollar (USD) pared losses after an upbeat consumer sentiment report. At the time of writing, the pair is trading at 1.3542, having rebounded from intraday lows at 1.3482.
Pound sterling gains after mighty data from the UK, which weakens the Bank of England’s expectations of easing monetary policy
In the UK, retail sales data helped support GBP/USD above the 1.3500 level, but remains below the recent cycle high which could pave the way towards 1.3600. In December, retail sales increased by 0.4% m/m, exceeding estimates assuming a decline of 0.1%. Year-over-year, sales increased from 1.8% to 2.5%, above forecasts of 1%.
According to S&P Global, business activity in the UK improved in January. The preliminary Services and Composite PMIs performed better than the December print, with the Services index rising from 51.4 to 54.3 and the Composite rising from 51.4 to 53.9.
Bank of England (BoE) Governor Megan Greene said: “Future wage growth rates are even more worrying than inflation expectations.” The BoE is expected to keep interest rates on hold in February, with investors reducing their chances of rate cuts. A day ago, money markets suggested monetary policy easing by 45 basis points at the end of 2026. At the time of writing, they expect at least 39 basis points.
On the other hand, the University of Michigan’s final consumer sentiment reading for January rose to a five-month high of 56.4, up from 54 in the preliminary reading, above forecasts of 54. Joanne Hsu, director of the survey, said that despite the improvement, “consumers continued to report pressure on their purchasing power from high prices and the prospect of weaker labor markets.”
The survey found that U.S. households see inflation expectations fall from 4.2% to 4% over the year, from 4.2% to 4%, and over the five years to 3.3%, down from 3.5%.
Other data showed U.S. business activity improved slightly in January, S&P Global reported. The composite PMI rose to 52.8 from 52.7. Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement: “The disturbingly low rate of new business growth in both manufacturing and services sectors further adds to signs that first-quarter growth may disappoint.”
Next week, investors will be watching the Federal Reserve’s monetary policy meeting and Fed Chairman Jerome Powell’s news conference.
GBP/USD Price Forecast: Technical Outlook
GBP/USD has broken the downtrend line, which opens the way to the 1.3600 challenge. A decisive break above this level could shift the trend upwards and open the door to further increases. The next key resistance level will be the July 1 high at 1.3788, ahead of 1.3800.
Conversely, if GBP/USD falls below 1.3500, the first support will be the 20-day SMA at 1.3452, followed by the 200-day SMA at 1.3406.
Sterling FAQs
The pound sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. As of 2022, it is the fourth most traded currency unit in the world, accounting for 12% of all transactions, with an average value of $630 billion per day. Its key trading pairs are GBP/USD, also known as “The Cable”, which makes up 11% of FX, GBP/JPY or “The Dragon” as traders call it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The most essential factor influencing the value of the pound sterling is the monetary policy pursued by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a constant inflation rate of around 2%. The basic tool to achieve this goal is to adjust interest rates. When inflation gets too high, the BoE will try to contain it by raising interest rates, making access to credit more pricey for citizens and businesses. 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 that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to lower borrowing prices so that companies borrow more to invest in projects that generate economic growth.
The published data are used to assess the condition of the economy and may affect the value of the pound sterling. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the GBP exchange rate. A mighty economy is good for sterling. Not only will it attract more foreign investment, but it may prompt the BoE to raise interest rates, which will directly strengthen the British pound. Otherwise, if economic data is feeble, sterling is likely to fall.
The next essential data release for the pound sterling is the trade balance. This indicator measures the difference between what a country earns from exports and what the country spends on imports over a given period. If a country produces a highly sought after export, its currency will only benefit from the additional demand created by foreign buyers willing to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa in the case of a negative balance.
