- GBP/USD fell on Thursday, falling below 1.2400 for the first time since April.
- January has only just begun, but cable is already on pace to end the month on a tough note.
- Friday's US PMI data will wrap up this week's economic calendar.
On Thursday, GBP/USD saw moderate price action, falling more than 1% at the start of the new trading season, breaking above the 1.2400 handle for the first time in nearly 10 months. After the mid-week New Year's holiday, market volume remains thin, but incoming orders are clearly in a risk-off stance.
Economic data on the UK side remains low through the remainder of the first business week of 2025, with cable traders bracing for a new update to the US Purchasing Managers' Index (PMI) scheduled for Friday. It turns out. British money supply and mortgage approvals are also due to be announced early Friday, but the less influential figures are unlikely to move the market.
The US ISM manufacturing PMI survey result for December is expected to be stable, with a negative 48.4, in line with the preliminary report. Despite the slight month-over-month increase, U.S. companies continue to have a weak outlook for activity in the first quarter of 2025 as domestic demand cools.
An important point for cable traders will be the interest rate differential through the first half of 2025. The Federal Reserve plans to cut interest rates much less throughout the year than previously expected. As noted in the US central bank's December Summary of Economic Projections (SEP), the Fed itself only expects to cut interest rates a total of two 25 basis points by 2025.
GBP/USD price prediction
GBP/USD is poised to dip again, moving back below 1.2400 and plummeting further to the 1.2300 handle. The 50-day exponential moving average (EMA) has accelerated bearishly below 1.2700 after passing the long-term 200-day EMA near 1.2780, which will put further downward pressure on the price trend in the short term.
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 BoE 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.
