- The GBP/USD bounced back on Tuesday, fueled by news regarding the upcoming US-UK trade agreement.
- While some specifics are still unclear, the GBP market found support amid hopes of dodging US tariffs.
- Pound Sterling gained 0.4% against the dollar after testing the 1.3400 mark.
The GBP/USD climbed on Tuesday, moving up nearly one percent, as it approached the 1.3400 level related to the trade agreement between the US and UK. This could potentially shield the UK from trade tariffs being sought by the Trump administration.
The upcoming Federal Reserve rate decisions, set for Wednesday, are anticipated to be a significant market event this week. Despite expectations for the Fed to maintain current rates, investors will be keenly watching remarks from policymakers, especially from Fed Chairman Jerome Powell, for any hints about an upcoming rate-cut cycle.
A BOE double header is scheduled for this week
The Fed is currently under pressure to reduce interest rates from various sources. Market participants continuously seek more affordable funding options. Intriguingly, the Trump administration has indicated that it’s the Fed’s role to lower rates for cheaper services—this is somewhat contrary to the Fed’s dual mandate of fostering full employment and managing inflation, aspects that seem to have been overshadowed by President Trump’s comments.
This week, the Bank of England (BOE) will monitor the Fed’s actions on Wednesday, followed by its own rate decision on Thursday. Unlike the Fed, the BOE is widely expected to decrease rates by another quarter-point, with predictions of a 9-1 vote favoring its fourth rate cut since August of last year.
GBP/USD price forecast
Even with a solid upward movement on Tuesday, GBP/USD still finds itself within a short-term range between 1.3450 and 1.3250. Price action appears to lean towards the midpoint, with technical indicators showing some momentum yet feeling somewhat drained overall.
The GBP/USD remains above the 200-day exponential moving average, sitting near 1.2830, but the upward momentum will likely require strong interest from buyers to break past the 1.3400 level.
GBP/USD Daily Chart
Pound Sterling FAQ
What is Pound Sterling?
Pound Sterling (GBP) is the world’s oldest currency, dating back to 886 AD, and serves as the official currency of Britain. In 2022, it ranked as the fourth most traded currency globally, accounting for 12% of transactions, with an average daily volume of $630 billion. Its most common trading pair is GBP/USD, also known colloquially as “cable.”
What factors influence GBP value?
The primary factor that impacts the value of the pound is the monetary policy set by the Bank of England. The BOE aims for “price stability,” targeting an inflation rate of around 2%. To manage this, it adjusts interest rates. If inflation rises too much, the BOE typically raises rates, making credit more expensive. Conversely, if inflation is low, the BOE might cut rates to stimulate borrowing and investment.
What economic data affects GBP?
Economic indicators like GDP, manufacturing and services PMIs, and employment rates can influence the pound’s value. Strong economic performance can attract foreign investment, possibly leading to higher interest rates and appreciating the GBP. Conversely, weak data could lead to a decline in the pound’s value.
How does trade balance impact GBP?
Trade balance, which measures the difference between a country’s exports and imports, is another crucial factor for the pound. A favorable trade balance, where exports significantly exceed imports, can strengthen the currency as foreign demand for domestic goods increases.
