- GBP/USD is expected to rise to about 1.3560 early on Tuesday in Europe.
- Dovish comments from the Fed weaken the US dollar.
- Trump has declared a complete ceasefire between Israel and Iran.
The GBP/USD pair gained momentum, reaching around 1.3560 in the early European session on Tuesday, largely due to a weaker US dollar. Traders are particularly attentive to the speech by Bank of England (BOE) Governor Bailey and Federal Reserve Chairman Jerome Powell’s testimony later in the day.
On Monday, Federal Reserve Governor Michelle Bowman mentioned that he would support interest rate cuts at the upcoming policy meeting in July, assuming inflation pressures remain under control. This aligns with earlier comments from Fed’s Christopher Waller, indicating that the US Central Bank may consider lowering interest rates in July.
These dovish remarks from Federal Reserve officials have pressured the dollar and served as a short-term boost for the GBP/USD pair. According to CME Group’s FedWatch tool, traders anticipate about a 23% chance of a cut in their July meeting, while approximately 78% expect a cut in September.
In the meantime, ongoing uncertainty regarding the ceasefire between Israel and Iran, coupled with new tensions in the Middle East, may increase demand for safe havens, benefiting the British pound (GBP). Notably, the Israeli Defence Force reported on Tuesday morning that they had detected missiles launched from Iran targeting southern Israel, despite claims of a “complete ceasefire” between the two nations.
Pound Sterling FAQ
Pound Sterling (GBP) is known to be the oldest currency in use today, dating back to 886 AD, and serves as the official currency of Britain. As of 2022, it’s the fourth most traded currency globally, making up around 12% of all foreign exchange transactions, with a daily average trading volume of approximately $630 billion. The primary trading pair is GBP/USD, often referred to as “cable,” and it constitutes about 11% of forex trades, while GBP/JPY (3%) and EUR/GBP (2%) are also notable pairs. The Bank of England (BOE) issues the pound sterling.
The key factor influencing the value of the pound is the monetary policy set by the Bank of England. The BOE assesses whether it has achieved its primary goal of maintaining “price stability,” which typically involves keeping inflation around 2%. Interest rate adjustments are the main tool utilized to meet this goal. If inflation rises too high, the BOE may increase rates to make borrowing costlier, which is generally seen as positive for the GBP. Conversely, if inflation is low and economic growth appears sluggish, the BOE might consider lowering rates to encourage borrowing and investment.
Economic data releases are also crucial as they provide insights into economic health and can impact the value of the pound. Key indicators such as GDP, manufacturing and services PMI, and employment figures influence GBP’s trajectory. A strong economy tends to attract more foreign investment, which can lead to interest rate increases by the BOE, further bolstering the GBP. If economic data is weak, however, the pound may weaken as well.
Another significant aspect of the pound’s value is the trade balance, which measures the difference between a country’s exports and imports over a specified period. A country with popular exports may see its currency strengthened due to increased foreign demand for its goods, leading to a positive net trade balance. In contrast, a negative balance could undermine the currency.
