- GBP/USD turned bearish, dropping below 1.34 on Wednesday.
- The market has scaled back its recent bullish tilt towards the pound.
- The US dollar recovered as investors considered the current state of the US economy.
GBP/USD traded unusually close on Wednesday, dropping sharply below 1.3400 as the broader market retreated from risk appetite. The British pound halted its recent lopsided move towards higher territory and the US dollar pared its recent losses.
For the remainder of the week, the pound will disappear entirely from the economic calendar data slate, leaving GBP/USD traders to grapple with the US inflation release on Friday.
US consumer confidence fell this week as the average US consumer does not share the stock market's enthusiasm for the Fed's rate cuts, with a key confidence indicator falling to its lowest level in three years and consumer inflation expectations over the next 12 months trending upwards. This Friday sees the release of the latest US personal consumption expenditures (PCE) inflation figures.
New home sales also declined in August, dropping 4.7% to 716,000 from a revised 751,000 in the previous month. Meanwhile, investors will be watching the release of second-quarter U.S. gross domestic product (GDP) growth, which is expected to remain flat at an annualized 3.0%. Thursday also sees a number of speeches and public comments from several Federal Reserve officials, including Chairman Jerome Powell.
Economic indicators
Trends in new home sales (month-on-month)
Announced new home sales U.S. Census Bureau It is a key indicator of the state of the housing market. Home buyers spend money on furnishings and financing their homes, which in turn stimulates demand for goods, services, and employees. Generally, a high reading is considered bullish for the US Dollar, while a low reading is considered bearish.
Final Release: Wednesday, September 25, 2024 14:00
frequency: Monthly
Actual: -4.7%
consensus: –
Previous: 10.6%
sauce: U.S. Census Bureau
GBP/USD Price Prediction
Wednesday's bearish reversal has pushed the pound below 1.3400 and is likely to remain below that range. Aggressive short sellers will likely target a fall to the 50-day exponential moving average (EMA) of 1.3062. GBP/USD buyers will likely target a rally to the 30-month high of 1.3430 reached this week.
GBP/USD daily chart
Frequently asked questions about the British pound
The Pound Sterling (GBP) is the world's oldest currency (886) and the official currency of the United Kingdom. According to 2022 data, it is the fourth most traded currency in the world by foreign exchange (FX) volume, accounting for 12% of all transactions, reaching an average of $630 billion per day. The main trading pairs are GBP/USD (also known as “Cable”), which accounts for 11% of FX, GBP/JPY (3%), known among traders as the “Dragon”, and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The most important factor affecting the value of the British pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its primary goal of “price stability” – a stable inflation rate of around 2%. Its main tool for achieving this is by adjusting interest rates. If inflation is too high, the Bank of England will try to contain it by raising interest rates, making it more expensive for individuals and businesses to obtain loans. Higher interest rates are generally a positive for the British pound, as they make the UK a more attractive place for investors around the world to park their funds. If inflation is too low, it is a sign that economic growth is slowing. In this scenario, the Bank of England would consider lowering interest rates to make credit cheaper and encourage businesses to borrow more to invest in projects that generate growth.
Data released measures the health of the economy and can affect the value of the British pound. Indicators such as GDP, manufacturing and services PMI, and employment can all influence the direction of the British pound. A strong economy is good for the British pound. Not only will it attract more foreign investment, but it may also encourage the Bank of England to raise interest rates, which will directly strengthen the British pound. On the other hand, weak economic data can cause the British pound to fall.
Another important piece of data about the British pound is its trade balance. This indicator measures the difference between the income a country makes from exports and the amount it spends on imports over a given period of time. If a country produces exports that are in high demand, its currency will only benefit from the additional demand created by foreign buyers looking to purchase these goods. So, if the trade balance is positive, the currency will be stronger and vice versa if it is negative.
