- The UK's annual growth rate remained slow in the third quarter of this year.
- The US reported a modest 0.4% increase in durable goods orders in November.
- The GBP/USD pair is in the red and the decline could widen towards 1.2500.
The British pound resumed its decline against its US rival in US trading on Monday, as the US dollar (USD) found short-term demand in a risk-averse environment. GBP/USD fell to an intraday low of 1.2473 following the release of the United Kingdom (UK) statistics.
The UK reported a current account deficit of £18,099 million in the third quarter, an improvement from a deficit of £24,020 million in the previous quarter.
Gross domestic product (GDP) for the third quarter was revised downward to an annualized rate of 0.9%, lower than the expected 1%. The UK economy did not grow in the same quarter, although it was expected to grow by a modest 0.1%.
As for the United States, the country reported durable goods orders for November fell 1.1%, worse than the expected 0.4% decline. Additionally, the CB Consumer Confidence Index in December was 104.7, a significant drop from November's 112.8, falling short of the expected 112.9.
GBP/USD technical outlook
Intraday technical indicators support bearish continuation in the short term as GBP/USD failed to make a proper bounce off the aforementioned lows. Immediate support lies in the 1.2480 area, followed by the 1.2420/40 area, and the pair has recorded multiple intraday highs and lows over the past few months. The recovery could gain momentum if the pair recovers above 1.2560 and the next potential bullish target is 1.2620.
Frequently asked questions about the British pound
Pound Sterling (GBP) is the world's oldest currency (886 AD) and 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 most important factor influencing the value of the pound is the monetary policy 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.
