- GBP/USD climbed above 1.3300 on Tuesday as the US dollar weakened.
- The market has been reacting notably to US inflation data, with investors keeping a close eye on ongoing trade discussions.
- The UK’s GDP growth report is due on Thursday, and expectations are mixed.
On Tuesday, GBP/USD found support and moved above 1.3300, recovering from earlier losses as the global sentiment shifted against the dollar. UK labor market indicators showed minimal movement, and market reactions were largely shaped by the US Consumer Price Index (CPI) trends. Investors are still banking on the potential benefits of ongoing trade negotiations involving the Trump administration, although the concessions offered have been temporary.
The UK’s quarterly ILO unemployment rate edged up to 4.5%, aligning with forecasts. However, the increase in claims for April was lower than anticipated, rising by only 5.2k. This figure fell short of March’s significant decline of -16.9K in new employment. Meanwhile, in the US, CPI inflation showed a slight dip in April, resulting in a three-year low for annual inflation. Analysts expect the trade strategy of imposing tariffs on major partners to have ongoing repercussions starting in May, with many believing this will be the last positive CPI reading for a while.
The market is now looking forward to Thursday’s GDP growth figures for the first quarter. The consensus forecast suggests a quarterly growth increase, with expectations of a 0.6% rise compared to 0.1% in the previous quarter. Yet, on a year-over-year basis, the impact of last year’s GDP decline is likely to show slower growth, revised down from 1.5% to 1.2%.
Additionally, the US Producer Price Index (PPI) data and the latest consumer sentiment survey from the University of Michigan are also set for release this week, with PPI numbers dropping on Thursday and consumer sentiment coming out on Friday.
GBP/USD price forecast
The recent bullish shift in GBP/USD suggests a potential pause as the pair encounters resistance. After a downturn from its recent peak near 1.3450, price action has fluctuated, yet bearish momentum seems to struggle to drive prices towards the 50-day EMA around 1.3100.
GBP/USD Daily Chart
Pound Sterling FAQ
The Pound Sterling (GBP), established in 886 AD, is the world’s oldest currency and serves as the official currency of Britain. As of 2022, it ranks fourth among the most traded foreign currencies, representing 12% of all forex transactions, with daily volumes averaging $630 billion. Its primary trading pair is GBP/USD, also known as “cable,” accounting for 11% of forex trades.
The value of the pound is primarily influenced by monetary policy set by the Bank of England (BOE), which focuses on achieving price stability, typically around a 2% inflation rate. Adjustments in interest rates are the main tools for this. If inflation rises too high, the BOE may increase rates, making credit more expensive, which is generally seen as favorable for GBP. Conversely, if growth slows and inflation drops, the BOE might lower rates to stimulate the economy.
Economic data also plays a crucial role in influencing the pound’s value. Indicators like GDP, manufacturing and services PMI, and employment statistics can sway GBP direction. A strong economy tends to attract foreign investment, potentially leading to higher interest rates by the BOE, which supports the pound’s value. In contrast, poor economic data can lead to a depreciation of the currency.
Another significant indicator for the Pound Sterling is the trade balance, which measures the difference between exports and imports. A positive trade balance, driven by high demand for popular exports, tends to strengthen the currency, while a negative balance can have the opposite effect.
