- GBP/USD continued its upward trend on Monday, rising 0.35%.
- Investor sentiment remains optimistic as expectations build for a reduction in the Fed rate.
- This week’s US inflation data could shake investor confidence ahead of the Fed’s next decision on rates.
The GBP/USD pair saw further gains on Monday, climbing by 0.35% to reestablish itself above 1.3550. Market sentiment is inclined toward anticipating a cut in interest rates during the Federal Reserve’s meeting on September 17, driven by a swift decline in employment in the US. Yet, with the Consumer Price Index (CPI) data set to be released this week, there are concerns that it might disrupt current expectations around interest rates.
The GBP/USD is currently facing technical resistance just below the crucial level of 1.3600. While ongoing support is provided by the 50-day exponential moving average (EMA) along with technical indicators suggesting potential for a bullish trend, the pair is struggling to surpass 1.3600. If short-term resistance levels remain intact, the recent upward momentum may not hold.
Inflation in the US poses a significant risk for potential rate cuts
A notable lack of UK data this week shifts attention to the US economic calendar. In separate news, French Prime Minister François Bayrou lost a trust vote in parliament, which, while not directly impacting the pound, adds an element of uncertainty in global politics—a familiar feeling for the UK, where similar risks often come into play.
The US Producer Price Index (PPI) inflation figures will be released on Tuesday, but the CPI update on Thursday is anticipated to be the week’s highlight. Investors predict a slight decrease in the core PPI, moving from 3.7% to 3.5% year-over-year. Additionally, there are hopes that the August headline CPI will rise moderately from 2.7% to 2.9%.
GBP/USD Daily Chart
Pound Sterling FAQ
Pound Sterling (GBP) is recognized as the longest-standing currency in the world, having been established in 886 AD, and serves as the official currency of Britain. In 2022, it ranked as the fourth most-traded currency globally, representing 12% of all forex transactions, with an average daily volume of $630 billion. The primary trading pair involving GBP is GBP/USD, also known as “cable”, accounting for 11% of forex trades, along with GBP/JPY, or “dragon” (3%), and EUR/GBP (2%). The currency is issued by the Bank of England (BOE).
The primary factor influencing the value of the pound is the monetary policy set by the Bank of England. This involves assessing whether the bank has achieved its goal of maintaining “price stability,” which is generally around a 2% inflation rate. To maintain this, adjustments to interest rates are often required. If inflation exceeds the target, the BOE might raise rates to curb spending, making credit more costly. Conversely, if inflation is low, the BOE might lower rates to stimulate borrowing and investment, which typically is seen as positive for the GBP.
Economic data plays a crucial role in influencing the value of the pound. Key indicators such as GDP, manufacturing, services PMI, and employment statistics can drive the direction of GBP. A robust economy typically supports the currency, attracting foreign investment and possibly leading to rate hikes by the BOE, which would further strengthen GBP. On the flip side, weak economic data could lead to a decline in the pound’s value.
Another significant measure for Pound Sterling is the trade balance. This reflects the difference between a country’s income from exports and its spending on imports over time. A country known for high-demand exports will benefit from increased foreign demand, thus enhancing its currency’s strength. Alternatively, a negative trade balance can weaken the currency.
