- GBP/USD dropped by 0.78% on Thursday, falling below all key SMAs and reaching a four-week low.
- US economic data lessens Dovish Fed expectations, bolstering the dollar and putting pressure on the pound.
- The US agenda includes core PCE, consumer sentiment, and speeches from Fed officials.
On Thursday, GBP/USD closed over 0.78% lower, and it seems ready to challenge recent lows as the UK faces a sparse economic calendar. This pair is set to trade under the 20, 50, 100, and 200-day SMAs following a drop below 1.3400 as we move into the Friday Asian session.
The decline reached a four-week low at 1.3324 following the release of US macroeconomic data, which dampened Dovish Federal Reserve expectations. From a technical perspective, should GBP/USD slip below 1.33, the next focal point could be the 200-day SMA around 1.3124.
Upcoming US Data Release: Core PCE and Fed Speakers
On Friday, the UK will have little to report apart from the T-Building auction. Meanwhile, the US is expecting its favored inflation metric, the Core Personal Consumption Expenditures (PCE) price index, to decline by 0.2% from last month’s 0.3%. Year-on-year, it’s anticipated to hold steady at 2.9% for August, the same as July.
Market participants will also look forward to the final figures of the University of Michigan Consumer Sentiment index and speeches from Fed representatives, including Richmond Fed President Thomas Barkin and Governor Michelle Bowman.
GBP/USD Daily Chart
Pound Sterling FAQ
The Pound Sterling (GBP), recognized as the oldest currency still in use today (since 886 AD), serves as the official currency of Britain. Data from 2022 revealed that it ranks fourth in global forex trading, capturing 12% of the market, with daily transactions averaging $630 billion. The primary trading pair is GBP/USD, often referred to as “cable,” alongside GBP/JPY, nicknamed “dragon,” and EUR/GBP.
Monetary policy, primarily determined by the Bank of England (BOE), is the single most influential factor affecting the pound’s value. The BOE aims for “price stability,” typically around a 2% inflation rate, using interest rate adjustments as its main tool. If inflation spikes, the BOE may raise rates, making borrowing more expensive and potentially benefiting the GBP. Conversely, if inflation is low, the BOE might lower rates to stimulate lending and economic growth.
Economic health indicators are also vital for the pound’s value. Factors like GDP, manufacturing and services PMI, and employment figures can sway the GBP. A robust economy attracts foreign investments, which could lead the BOE to increase interest rates, thus strengthening the currency. On the other hand, weak economic data might have the opposite effect.
Another crucial economic indicator for the pound is the trade balance, which reflects the difference between exports and imports over time. A surplus in exports typically boosts the currency’s value due to heightened demand from foreign buyers, whereas a negative balance could weaken it.
