GBP to USD Forecast: Sub-$1.26 in Play on UK GDP and US PPI Numbers

Highlights

• It is a big day ahead for the GBP/USD, with UK GDP numbers in focus this morning.
• Recessionary fears have resurfaced, increasing GBP sensitivity to the GDP numbers ahead of the US PPI Report.
• The nearer-term technical indicators are bearish, with sub-$1.26 in view.

On Thursday, the GBP to USD fell by 0.34% to wrap up the day at $1.26755. The US CPI Report and recessionary jitters left the GBP/USD at sub-$1.27.

It is a busy day ahead for the GBP to USD. UK GDP numbers for the second quarter and industrial and manufacturing production, and trade data will be in focus this morning. We expect GDP and manufacturing production figures to have more impact.

Economists forecast manufacturing production to increase by 0.2% in June. However, economists expect the UK economy to stall in the second quarter after expanding by 0.1% in the previous quarter. Monthly GDP numbers could provide relief, with economists forecasting the economy to grow by 0.2% in June.

Later in the session, NIESR GDP estimates will also move the dial.

While the UK economic calendar is busier, no Bank of England Monetary Policy Committee Members are on the calendar to speak today, leaving chatter with the media to influence.

UK GDP figures have a material impact on the GBP/USD. A deteriorating macroeconomic environment leads to a decline in foreign investment and demand for the Pound. The Bank of England must also consider economic conditions when making monetary policy decisions. Tight monetary policy conditions and a weakening macroeconomic environment would force the BoE to ease policy or hit the brakes in a monetary policy tightening cycle.

The US Session

It is another big day ahead, with US producer price index numbers and the Michigan Consumer Sentiment survey in focus. A more marked increase in the producer price index and improving consumer confidence would give the Fed more food for thought.

Economists forecast the producer price index to increase by 0.2% in July, following a 0.1% increase in June. However, economists expect the Michigan Consumer Sentiment Index to slip from 71.6 to 71.0.

The producer price index shows the direction of selling prices received by domestic producers. Significantly, the PPI includes selling prices from the first commercial transaction for products and services, a leading indicator for consumer price inflation. Upward trends in the producer price index signal a pickup in consumer inflationary pressures.

Beyond the economic calendar, investors should monitor the news wires for Fed chatter throughout the day.

GBP to USD Price Action

Daily Chart

The Daily Chart showed the GBP to USD sat below the $1.2785 – $1.2862 resistance band. Looking at the EMAs, the GBP to USD sat below the 50-day EMA ($1.27377) while holding above the 200-day EMA ($1.24566), sending bearish near-term but bullish longer-term price signals.

Notably, the 50-day EMA narrowed to the 200-day EMA, signaling further price losses.

Looking at the 14-Daily RSI, the 41.38 reading sends bearish price signals. The RSI signals a fall to sub-$1.2650 to bring the $1.2520 – $1.2440 support band into view. However, a GBP to USD move through the 50-day EMA ($1.27377) would support a breakout from the $1.2785 – $1.2862 resistance band to target $1.29.

4-Hourly Chart

Looking at the 4-Hourly Chart, the GBP to USD hovers below the $1.2785 – $1.2862 resistance band. The GBP to USD also sits below the 50-day ($1.27528) and 200-day ($1.27810) EMAs, sending bearish near and longer-term price signals.

Significantly, the 50-day EMA fell back from the 200-day EMA, a bearish price signal. However, a GBP to USD move through the EMAs would support a breakout from the $1.2785 – $1.2862 resistance band to give the bulls a look at $1.29. Failure to move through the 50-day EMA would leave sub-$1.2650 and the $1.2520 – $1.2440 support band in play.

The 14-4H RSI reading of 40.60 sends bearish signals, with selling pressure outweighing buying pressure. Significantly, the RSI signals a fall to sub-$1.2650 to bring the $1.2520 – $1.2440 support band into play.