- GBP/USD once again pushed to multi-year highs on Thursday.
- Broad market greenback weakness further boosted cable.
- Despite the lack of UK statistics, the pound's rise continues unabated.
On Thursday, GBP/USD cut another multi-year high, hitting a 31-month high of 1.3434 as cable was pushed to an all-time high by broad market greenback selling. Better-than-expected U.S. economic data has pushed risk appetite back into high territory, easing investor concerns about a possible economic slowdown.
The recent 50 bps rate cut by the US Federal Reserve has sparked an undercurrent of concern in global markets, with some investors wondering if the Fed's big rate cut may be in response to an impending US economic slowdown. I feel scared. Federal Reserve Chairman Jerome Powell argued last week that the Fed's rate cut was not a quick response to potential recession data, but rather a preemptive step to strengthen the U.S. labor market.
U.S. durable goods orders and new jobless claims last week both came in better than expected, stabilizing the “soft landing” economic rhetoric and helping to confirm the Fed chief's case. But Friday's personal consumption expenditure (PCE) inflation numbers will get a lot of attention and will be the real test of last week's Fed rate cut.
U.S. durable goods orders in August were flat at 0.0% month-on-month, significantly lower than the previous month's revised 9.9%, but still higher than the expected contraction of 2.6%. The number of new unemployment insurance claims for the week ending September 20 also exceeded expectations, coming in at 218,000 versus the expected 225,000, down from the previous week's revised figure of 222,000.
GBP/USD price prediction
There is little relevant technical resistance for Pound bulls as cable continues to make new multi-year highs. However, a very unilateral push towards the high end has left GBP/USD price action exposed to a potential downside snap as market velocity takes hold. If short pressure increases in the current region, the bid price could easily fall below the 1.3100 handle and into the 50-day exponential moving average (EMA) of 1.3076.
GBP/USD daily chart
Frequently asked questions about the British pound
Pound Sterling (GBP) is the world's oldest currency (886 AD) and is the official currency of the United Kingdom. According to 2022 data, foreign exchange (FX) trade volume is the fourth largest in the world, accounting for 12% of all trades and an average of $630 billion per day. Its main trading pairs are GBP/USD (also known as “cable”), which accounts for 11% of FX, GBP/JPY (3%), known as the “dragon” among traders, and EUR/GBP (2%). . Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the pound is monetary policy, determined by the Bank of England. The Bank of England's decision will be based on whether it has achieved its main objective of “price stability,'' or a stable inflation rate of around 2%. The main tool for achieving this is interest rate adjustment. If inflation is too high, the BoE will try to control it by raising interest rates, making it more costly for people and businesses to access credit. This is generally positive for the pound, as rising interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low, it is a sign that economic growth is slowing. In this scenario, the BOE would consider lowering interest rates to make credit cheaper so companies can borrow more to invest in growth-generating projects.
The data release measures the health of the economy and could impact the value of the pound. Indicators such as GDP, manufacturing and services PMI, and employment can all influence the direction of GBP. A strong economy is good for the pound. As well as attracting more overseas investment, that could prompt the BoE to raise interest rates, which could directly lead to a stronger pound. Otherwise, if economic indicators are weak, the pound may weaken.
Another important piece of data about the British pound is its trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces highly sought-after export goods, its currency will benefit purely from the additional demand generated from foreign buyers looking to purchase these goods. Therefore, if the net trade balance is positive, the currency strengthens, and vice versa if it is negative.
