- GBP/USD dipped below the 50-day EMA on Wednesday.
- Pressure from the dollar is increasing as investors shift toward risk-averse strategies.
- Key US PCE inflation data is set to be released at the end of the week.
GBP/USD struggled with a short-term upward correction on Wednesday, bringing its 50-day exponential moving average (EMA) down to around 1.3500, effectively ending its two-day winning streak. As market participants scrutinized the upcoming inflation figures amid concerns over a potential US government shutdown, there was a significant shift in overall market sentiment as the week progressed.
The currency pair hit its lowest point in three weeks on Wednesday, losing more than half of its previous 1% gain in just one trading session. While GBP/USD remains below the 50-day EMA, further declines could find a support level near the 1.3400 mark.
Upcoming US Intermediate Data Ahead of Friday’s PCE Inflation Report
This week’s data calendar for the UK is fairly sparse, with market focus primarily shifting to the US. An increase in durable goods orders, first-time weekly unemployment claims, and comments from Federal Reserve officials will draw attention on Thursday. However, the major highlight will be the quarterly growth in US GDP, which is expected to hold steady at an annualized rate of 3.3%.
The latest reading of the personal consumption expenditure (PCE) price index is due on Friday. Investors will be watching closely to see if companies are able to sustain their profit margins despite potential rising rates.
GBP/USD Daily Chart
Pound Sterling FAQ
Pound Sterling (GBP), the oldest currency still in use today (since 886 AD), is the official currency of Britain. As of 2022, it ranks as the fourth most traded currency globally, making up about 12% of all forex transactions with an average daily trading volume of $630 billion. The main trading pair is GBP/USD, also known as “cable,” which comprises 11% of FX trades, alongside GBP/JPY (or “dragon”) at 3% and EUR/GBP at 2%. The Bank of England (BOE) is responsible for issuing Pound Sterling.
The primary influence on the value of the pound is the monetary policy set by the Bank of England. The BOE’s goal is to maintain “price stability,” which translates to a consistent inflation rate around 2%. To achieve this, they adjust interest rates. If inflation rises too much, they may increase rates to control spending, making borrowing pricier, but potentially appealing to global investors. Conversely, if inflation dips too low, they might lower rates to stimulate economic activity and encourage investments.
Economic indicators, including GDP, manufacturing and services PMI, and employment figures, can influence the sterling’s value. A robust economy tends to strengthen the pound by attracting foreign investment and possibly prompting the BOE to raise interest rates, which directly enhances GBP’s value. In contrast, weak economic data can lead to a decline in Sterling’s strength.
Another crucial metric for Pound Sterling is the trade balance, which looks at the difference between exports and imports over time. Strong demand for exports can reinforce a currency as foreign buyers seek to purchase goods, thus boosting its value. A positive trade balance typically strengthens the currency, while the opposite scenario can have a detrimental effect.
