GBP to USD Forecast: US Manufacturing Data and Powell’s Influence

Highlights

• The GBP/USD fell by 0.56% on Thursday, ending the session at $1.26231.
• On Friday, UK house prices and manufacturing PMIs are in focus before the US session.
• Fed Chair Powell will be the focal point later in the session.

The Thursday GBP/USD Overview

On Thursday, the GBP/USD fell by 0.56%. After a 0.01% gain on Wednesday, the GBP/USD ended the day at $1.26231. The GBP/USD rose to a high of $1.27108 before falling to a low of $1.26035.

UK Housing and Manufacturing Sectors in Focus

On Friday, UK house prices and Manufacturing PMI figures will garner investor interest. Elevated UK interest rates leave the housing sector under pressure. A larger-than-expected fall in house prices could test buyer demand for the GBP/USD.

A deteriorating housing market could impact consumer sentiment and consumer spending. Downward trends in consumer spending could ease demand-driven inflation and the need for a hawkish BoE rate path.

Later in the session, finalized UK Manufacturing PMI numbers also need consideration. An upward revision to the headline PMI could ease fears of a prolonged UK recession. The manufacturing sector contributes less than 30% to the UK economy. However, a downward revision could impact sentiment toward the UK economic outlook.

US Manufacturing Sector and Fed Chair Powell in Focus

On Friday, the ISM Manufacturing PMI and finalized S&P Global Manufacturing PMI will need consideration. Investors will likely respond to the more influential ISM Manufacturing PMI. Importantly, the sub-components, including prices and employment, will also move the dial. Better-than-expected numbers would support bets on a soft landing.

The manufacturing sector contributes less than 30% to the US economy. Barring a marked fall in manufacturing sector activity, the numbers are unlikely to influence the Fed.

However, the Fed Chair will move the dial. Reaction to the inflation and GDP numbers needs consideration. The markets are betting on an H1 2024 rate cut, leaving the door open to a hawkish surprise. While inflation softened, labor market conditions remain tight, supporting wage growth and consumption.

Short-Term Forecast

Near-term trends for the GBP/USD remain hinged on Fed Chair Powell. A dovish outlook on interest rates and support for a Fed rate cut would bring $1.30 into view.

GBP to USD Price Action

Daily Chart

The GBP/USD remained above the 200-day and 50-day EMAs, affirming bullish price signals.

A GBP/USD return to $1.27500 would support a move to the $1.28013 resistance level.

Manufacturing PMIs and Fed Chair Powell are in focus.

However, a GBP/USD drop below the $1.26000 handle would give the bears a run at the $1.24410 support level.

The 14-period daily RSI reading of 64.92 suggests a GBP/USD return to $1.27 before entering overbought territory.

4-Hourly Chart

The GBP/USD held above the 50-day and 200-day EMAs, reaffirming bullish price signals.

A GBP/USD move to $1.27000 would give the bulls a run at the $1.28013 resistance level.

However, a break below the 50-day EMA would support a fall toward the $1.24410 support level.

The 14-period RSI on the 4-hour Chart at 49.91 suggests a GBP/USD break below the 50-day EMA before entering oversold territory.