- GBP/USD fell for the eighth consecutive day on Tuesday.
- US CPI inflation increased in June, dampening expectations for a Fed rate cut.
- Upcoming data: UK CPI inflation and US PPI business inflation on Wednesday.
On Tuesday, GBP/USD faced its eighth straight decline. Following the rise in the US consumer price index (CPI) for June, concerns about global risk increased, leading to investor hesitation, particularly among those anticipating quick interest rate cuts from the Federal Reserve in the upcoming quarter.
US CPI inflation saw an uptick as the second quarter came to a close. While the figures generally met or exceeded expectations, investors are still uneasy with rising prices. The annual CPI rose to 2.7% in June, while the Fed aims for a target of 2%. As inflation remains a pressing issue, the slim hope for early rate reductions from the Fed is fading fast.
Hello inflation, goodbye rate reduction
According to CME’s FedWatch tool, traders are currently expecting the Fed to hold rates steady in July. Hopes for September rate cuts were also dampened post-CPI, with about 44% probability that the current rate will remain unchanged. Nevertheless, the market is still anticipating two rate cuts in 2025, and there’s an 80% chance of a quarter-point rate cut in October.
GBP traders should be cautious ahead of Wednesday’s data releases, which include the UK CPI early in the London session and additional US inflation figures from the producer price index (PPI). There’s also a new set of UK labor data expected on Thursday, along with ongoing US retail sales statistics.
GBP/USD price forecast
The Pound Sterling (GBP) dropped from its previously high levels against the US dollar, sliding down from the multi-year peak it reached in early July. The pair pierced through the 50-day exponential moving average (EMA) near 1.3500, facing continuous selling pressure as it approaches a significant trend line from January’s lows around 1.2200.
GBP/USD Daily Chart
Pound Sterling FAQ
Pound Sterling (GBP), recognized as the oldest currency globally (since 886 AD), is the official currency of Britain. As of 2022, it’s the fourth-most traded currency in the foreign exchange market, making up around 12% of all transactions, averaging $630 billion daily. Its primary trading pair is GBP/USD, referred to as “cable,” which represents 11% of FX, alongside GBP/JPY (“dragon”) at 3% and EUR/GBP at 2%. The Bank of England issues the pound.
The value of the pound is primarily influenced by the monetary policy decisions made by the Bank of England. They aim to achieve “price stability,” targeting an inflation rate near 2%. Interest rate changes are the main tool used to manage inflation. If inflation rises too sharply, the Bank will likely increase rates, making credit more expensive, which generally supports the pound’s value. Conversely, if inflation is too low, suggesting economic slowdowns, the Bank may lower rates to stimulate credit and investment.
Various economic indicators, such as GDP and employment data, can also impact the pound’s value. A strong economy is generally favorable for the pound, attracting foreign investment and possibly prompting the Bank of England to raise interest rates, consequently boosting the currency. Weak economic data could conversely lead to a decline in sterling’s value.
Another key metric for Pound Sterling is the trade balance, which measures the difference between exports and imports over a set period. A favorable trade balance, where exports exceed imports, can bolster the currency by creating demand from foreign buyers for British goods. Therefore, a positive trade balance generally strengthens the pound.
