- GBP/USD gained 0.7% after receiving bids on Monday.
- PMI statistics softened on both sides of the Atlantic.
- The ease of the flow on Greenback gave Cable a chance to catch his breath.
GBP/USD continues its second consecutive day of gains, rising 71% in tenths to begin the new trading week, pushing the bid back above the 1.2500 handle after a bearish plunge below 1.2400 last week. Purchasing Managers' Index (PMI) numbers were below target for both the UK and US sides. However, the general environment of heightened risk appetite kept safe-haven dollar flows at bay.
UK PMI data for December was completely off the mark, falling below Wall Street expectations, but still above the 50.0 threshold for forecasting an economic contraction. In particular, the composite PMI fell to its lowest level in 13 months, falling to 50.4 from the expected 50.5.
Monday's final U.S. S&P global PMI was a little off the mark, with December headline PMI and services PMI both up on a monthly basis, albeit below analysts' expectations. Both indicators have been revised down slightly from preliminary readings, but are still gaining momentum as the U.S. economy accelerates.
The key mid-week indicator is Tuesday's December US ISM Services PMI. The median market forecast expects the index to rise to 53.0 from 52.1 last month. Friday's nonfarm payrolls (NFP) data will cast a long shadow over the market this week. Investors are anticipating a Goldilocks statistic that will push the Federal Reserve toward further rate cuts, but neither too weak nor too strong on either side.
GBP/USD price prediction
After plummeting below the 1.2400 handle to a nine-month low last week, GBP/USD has eased into a two-day rally, a welcome change from a technical standpoint. Selling pressure remains focused on the key price level of 1.2000, but depletion could be on the cards as buyers look to push the price back through the 1.2700 handle and into the declining 50-day exponential moving average (EMA). It could be above.
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 the “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 British pound is monetary policy, as 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 Bank of England will try to control it by raising interest rates, making credit more costly for people and businesses. 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.
