GBP to USD Forecast: Consumer Credit and the Housing Sector in Spotlight

Highlights

• The GBP/USD fell by 0.08% on Friday, ending the session at $1.21174.
• Market sentiment toward the UK economy and the Bank of England left the GBP/USD in negative territory on Friday.
• On Monday, Bank of England survey-based figures and the Middle East conflict will be focal points.

The Friday GBP/USD Overview

On Friday, the GBP/USD slipped by 0.08%. Following a 0.14% gain on Thursday, the GBP/USD pair ended the session at $1.21174. The GBP/USD fell to a low of $1.21047 before rising to a Friday high of $1.21628.

Bank of England Surveys in the Spotlight

A deteriorating UK macroeconomic environment will likely impact credit lending conditions. The elevated inflation and interest rate environment affect disposable income. However, a weakening housing sector and uncertain labor market conditions could impact the availability of loans.

Tighter credit conditions and a downward trend in disposable income, without access to readily available credit, would influence consumer spending.

UK private consumption contributes over 60% to the UK economy. A pullback in spending would place the UK economy under more strain.

Economists forecast consumer credit to fall from £1.644 billion to £1.400 billion in September. Notably, economists expect mortgage lending to decline from £1.218 billion to £0.600 billion. However, mortgage approvals may see a modest decline, with economists predicting a fall from 45.345k to 45.000k.

The September figures align with market bets on the Bank of England holding interest rates unchanged on Thursday.

Beyond the economic calendar, the Middle East will remain a focal point. News of an escalation in the conflict could fuel demand for the safety of the US dollar.

Dallas Fed Manufacturing Index in Focus

On Monday, the Dallas Fed Manufacturing Index will be in focus. Economists forecast the Index to rise from -18.1 to -15.0. Better-than-expected Index figures are unlikely to influence the Fed interest rate decision on Wednesday. The US manufacturing sector accounts for less than 30% of the US economy.

However, investors could respond favorably to signals of a soft landing. Beyond the headline figure, investors must consider the employment and prices sub-components.

Short-Term Forecast

The GBP/USD rests in the hands of US labor market figures, the services PMIs, and the Fed interest rate decision. A hawkish Fed hold on interest rates would likely pressure the GBP/USD pair and bring sub-$1.20 into view.

GBP to USD Price Action

Daily Chart

The GBP/USD pair remained below the 50-day and 200-day EMAs, affirming bearish price signals.

A GBP/USD fall below $1.21000 would bring sub-$1.20000 and the $1.18388 support level into view. Market risk sentiment and the BoE surveys will be focal points on Monday. A marked fall in lending to consumers would impact bets on BoE rate hikes.

However, a break above the $1.21216 resistance level would support a move toward the 50-day EMA.

The 14-period daily RSI reading of 40.65 indicates a GBP/USD fall to $1.20000 before entering oversold territory.

4-Hourly Chart

The GBP/USD hovers below the 50-day and 200-day EMAs, reaffirming bearish price signals.

A GBP/USD break above the $1.21216 resistance level would support a move to the 50-day EMA.

However, a drop below $1.21000 would bring sub-$1.20000 and the $1.18388 support level into view.

With an RSI reading of 45.10 for the 14-period 4-hourly Chart, the GBP/USD could drop below $1.20500 before entering oversold territory.