- GBP/USD declined on Monday, dropping 0.4% as the trading week began.
- The dollar saw a rebound after significant losses last week.
- This week’s quiet start will give way to important data releases and policy statements.
GBP/USD kicked off a softer trading week, easing by about a quarter of a percent in the opening session. The US Dollar managed to recover some of its previous losses, affecting the gains made by the Pound Sterling on Monday.
The week started off rather calm, with little attention to market data. However, things will shift dramatically on Wednesday with key economic data from the UK and the start of the Jackson Hole Economic Symposium hosted by the Kansas Fed.
This week will feature the UK Consumer Price Index (CPI) for July on Wednesday, followed by the Purchasing Manager Index (PMI) activity results for both the UK and the US on Thursday. Then, there will be another update on UK retail sales on Friday. But the highlight of the week will be the Jackson Hole event, with Chair Jerome Powell presenting on Friday.
Last week, US inflation data created fresh concerns among global markets, although the overall sentiment about the September rate cut by the Fed has been largely priced in. According to CME’s FedWatch tool, the futures market shows an over 80% likelihood of at least a quarter-point cut next month, and nearly 90% chance for December.
GBP/USD Price Forecast
The newly bearish momentum on Monday brought GBP/USD to a critical point, approaching the 50-day exponential moving average (EMA) near 1.3450. Still, the pair remains firmly entrenched in bullish territory, trading above the 200-day EMA close to 1.3170.
GBP/USD Daily Chart
Frequently, the Pound Sterling (GBP) is noted for being the oldest currency, dating back to 886 AD, and serves as the official currency of Britain. In 2022, it ranked as the fourth most traded currency, making up 12% of forex transactions with an average daily volume of $630 billion. Its main trading pair is GBP/USD, often referred to as “cable,” which constitutes 11% of forex transactions.
The primary influence on the pound’s value stems from the monetary policy set by the Bank of England (BOE), particularly related to its goal of maintaining price stability at around 2% inflation. When inflation surges, the BOE often raises interest rates to manage it, which tends to be positive for GBP. Higher rates attract global investors, while lower rates can stimulate growth during periods of low inflation.
Economic data is also crucial for the pound’s valuation. Indicators like GDP, PMIs, and employment statistics influence the currency’s direction. A robust economy can attract foreign investment and potentially lead the BOE to raise rates, thereby strengthening the GBP. Conversely, weak economic data can lead to declines in the currency’s value.
Additionally, the trade balance is an important indicator for the Pound Sterling. This measures the difference between a country’s exports and imports over time. A favorable trade balance strengthens the currency as demand from foreign buyers for exports increases, while a negative balance can weaken it.
