On Monday, the GBP/USD pair saw a much-appreciated uptick, although this shift was largely a result of a broader decline in the US dollar rather than a notable strength in the British pound sterling. Interestingly, US President Donald Trump has expressed a desire to acquire Greenland, but his proposal has faced significant backlash from the European Union, particularly from Denmark, which oversees Greenland as an autonomous territory, and from Greenland itself.
Trump has hinted at adopting a more confrontational approach, claiming that the United States effectively “owns” Greenland. He referenced his exclusion from the Nobel Peace Prize nomination during this rhetoric, even after being counseled by Norway’s Prime Minister that the award is given by an independent committee. Additionally, he suggested implementing a 10% tariff on U.S. exports to European nations beginning February 1, which could rise to 25% by summer. This potential move has prompted swift retaliatory threats from European leaders, who warn of reciprocal tariffs that could further strain U.S. industries that are already under pressure.
Trade tensions coupled with a packed data schedule
Traders dealing with the cable are in for a busy week. Alongside the ongoing trade war developments, the UK is set to release the latest unemployment claims and employment figures for December and November, respectively. The December Consumer Price Index (CPI) inflation numbers are due on Wednesday, followed by the UK’s Purchasing Managers’ Index (PMI) results slated for Friday.
On the U.S. front, traders can expect the ADP employment changes data to be released on Tuesday, in addition to a speech by Trump on Wednesday. A significant update regarding the U.S. Personal Consumption Expenditure Price Index (PCE) inflation is anticipated for Thursday. The trading week will conclude on Friday with new findings from the S&P Global US PMI Survey for January.
Forecast for GBP/USD
Monday’s early bullish rebound provided GBP/USD with a solid position just above the 50-day exponential moving average (EMA), hovering near 1.3400. However, the overall trend appears to be leaning bearish. The currency pair has been gradually declining since it fell below the 1.3550 mark in early January, and the Stochastic Oscillator suggests there’s still potential for further declines, even though it has reached an oversold level.
GBP/USD daily analysis
Common inquiries about the British pound
Pound Sterling (GBP) is the oldest currency still in use, dating back to 886 AD, and serves as the official currency of the United Kingdom. Based on 2022 data, it ranks fourth globally in terms of foreign exchange (FX) trade volume, representing about 12% of all trades with an average daily trading volume of $630 billion. The primary trading pairs include GBP/USD, known as the “cable,” which accounts for 11% of FX transactions, alongside GBP/JPY (3%) termed the “dragon” by traders, and EUR/GBP (2%). The Bank of England (BoE) issues the currency.
The main driver of the British pound’s value is monetary policy set by the Bank of England. Their decisions hinge on whether they’ve achieved their goal of maintaining “price stability,” or a roughly 2% inflation rate. Interest rate adjustments are the primary tool for this. High inflation usually leads the BoE to raise rates, making borrowing more expensive. This can bolster the pound as higher rates attract global investors. Conversely, if inflation dips too low, suggesting slowing economic growth, the BoE might lower rates to encourage borrowing and investment.
Data releases that gauge economic health can significantly impact the pound’s value. Indicators like GDP, manufacturing and services PMI, and employment figures play a role in this. When the economy is strong, the pound tends to benefit from increased overseas investment, which might push the BoE to consider raising interest rates, directly affecting the currency’s strength. Weak indicators, however, could lead to a depreciation of the pound.
The British pound’s trade balance is also crucial. This measure shows the difference between a country’s export earnings and its import spending over time. A positive balance—stemming from high demand for export goods—can strengthen the currency, as foreign buyers seek to purchase. Conversely, a negative trade balance would likely weaken the pound.
