- The GBP/USD pair rebounded from recent losses, climbing just above 0.2% on Monday.
- A risk-averse flow to the dollar has eased as the new week begins.
- Although market tensions have cooled temporarily, the threat of a US government shutdown looms large.
On Monday, GBP/USD managed to pull off a second consecutive gain, inching up by 0.2% as the strength of the US dollar diminished across the board. The British pound (GBP) found enough momentum to move past the 1.3400 mark. With the latest GDP growth numbers coming out on Tuesday, there’s certainly anticipation in the air.
The final growth figures for the UK’s Q2 GDP are estimated to hold steady at 0.3% quarter-on-quarter and 1.2% year-on-year. Typically, the final GDP results don’t stray far from expectations. However, unexpected changes, if significant enough, could lead to sharp movements in the pound based on whether the figures meet or miss projections.
While the US non-farm payroll (NFP) data is set for later this week, there’s an overwhelming uncertainty in investor sentiment. This comes as the US government seems headed toward a potential shutdown, raising concerns that the latest employment report might not even see the light of day this week. President Trump has hinted at significant job cuts if Congress does not approve funding bills, effectively using the threat of government disruption as leverage.
GBP/USD Price Forecast
The pound has been slowly recovering after hitting a seven-week low last Thursday. Currently, GBP/USD has climbed back above 1.3400, but the short-term outlook may still face downward pressure, particularly from the 50-day exponential moving average (EMA) around 1.3480, which acts as a resistance point.
Even if it manages a breakthrough on the day, the 1.3500 level poses additional challenges for bullish traders, making it a tricky area to navigate.
GBP/USD Daily Chart
Pound Sterling FAQ
The pound sterling (GBP) is the oldest currency still in use today, dating back to 886 AD, and serves as the official currency of Britain. As of 2022, it ranks as the fourth most traded currency in the forex market, making up 12% of all transactions, with daily trading averaging around $630 billion. Its primary trading pair is GBP/USD, sometimes referred to as “cable,” along with GBP/JPY (“dragon”) and EUR/GBP.
The key factor influencing the value of the pound is the monetary policy set by the Bank of England (BOE). The BOE aims for “price stability,” generally targeting an inflation rate of about 2%. To achieve this, it adjusts interest rates. When inflation is high, the BOE may raise rates, making borrowing more expensive, which tends to support the GBP’s value. Conversely, if inflation is low, it may lower rates to stimulate economic growth, potentially leading to a weaker pound.
Economic indicators play a pivotal role in determining the strength of the pound. Metrics like GDP, manufacturing and services PMI, and employment statistics can significantly sway GBP’s direction. A robust economy tends to benefit the pound, attracting foreign investment and encouraging the BOE to raise rates, which boosts GBP further. On the other hand, weak economic data can result in a decline in pound value.
Another critical measure for the pound is the trade balance, which reflects the difference between a country’s export earnings and its spending on imports. If a country enjoys a trade surplus from popular exports, it strengthens the currency as demand rises from foreign buyers. Therefore, a positive trade balance can bolster the pound, while a negative one can have the opposite effect.
