- GBP/USD made a modest gain on Tuesday, marking the third consecutive bullish session.
- Market reactions are somewhat muted, as everyone keeps a close eye on the potential US government shutdown.
- This week’s NFP Job Report is likely to be either canceled or delayed.
GBP/USD experienced a slight uptick on Tuesday, approaching the 1.3450 range and hinting at a third straight bullish session. The UK’s Gross Domestic Product (GDP) growth exceeded expectations, positively affecting the pound (GBP). Meanwhile, the flow of the US dollar (USD) is being monitored as investors react to the unfolding funding crisis in the US government.
The UK’s GDP growth accelerated to 1.4% year-on-year in the second quarter, surpassing the anticipated 1.2%. While GBP flows have been positive, activity in the Forex market has notably decreased as the US government edges toward a shutdown. This situation was highlighted after Congress adjourned early on Tuesday, leaving the US federal government without a budget plan as it transitions past the October 1 fiscal rollover.
On Wednesday, the US Supply Management Institute (ISM) Purchase Manager Index (PMI) figures are set to be released, along with the latest ADP employment change data for September. The rapid sign from Chicago’s Advanced PMI has raised questions about the expected ISM PMI figures this Wednesday.
The change in ADP employment is predicted to dip slightly, from the previous 54K to around 50K. Although there’s a loose correlation between ADP data and the non-farm payroll (NFP) data, investors without access to reliable government stats might rely more heavily on the ADP figures this week.
Furthermore, the US Bureau of Labor Statistics (BLS) has indicated that it will cancel or postpone the upcoming NFP job count if the government shuts down. The NFP report, due this Friday, remains a big uncertainty for market participants.
GBP/USD Price Forecast
The continuing bullish trend on the cable chart has driven GBP/USD bids to a precarious midpoint between significant moving averages. However, the momentum has dwindled just below the 50-day exponential moving average (EMA) around 1.3480, while the 200-day EMA provides robust technical support near the 1.3250 level.
GBP/USD Daily Chart
Pound Sterling FAQ
Pound Sterling (GBP) is the world’s oldest currency, established in 886 AD, and serves as the official currency of Britain. As per 2022 data, it’s the fourth most traded currency globally, making up about 12% of all forex transactions, with a daily average of $630 billion. Its main trading pair is GBP/USD, also referred to as “cable,” accounting for 11% of forex trades, along with GBP/JPY (“dragon”) at 3% and EUR/GBP at 2%. The Bank of England (BOE) issues the pound.
The primary factor influencing the value of sterling is the monetary policy set by the Bank of England. Their decisions focus on achieving “price stability,” aiming for approximately a 2% inflation rate. To maintain this, they adjust interest rates—raising them to combat high inflation, which can lead to an attractive investment climate for global investors. Conversely, if inflation is too low, the BOE might lower rates to stimulate economic growth.
Economic data plays a crucial role in assessing the health of the economy and can influence the value of the pound. Indicators such as GDP, manufacturing and services PMI, and employment statistics can sway GBP’s direction. A robust economy tends to attract more foreign investment and can lead to interest rate hikes, further strengthening the GBP. Weak economic indicators, however, could have the opposite effect.
Another significant statistic for Pound Sterling is the trade balance, which measures the difference between exports and imports over time. A positive net trade balance can strengthen the currency by increasing demand from foreign buyers, while a negative balance could weaken it.
