GBP/USD hovers around 1.2800 with aiming to extend gains due to risk-on mood
|- GBP/USD grapples to extend gains due to dovish sentiment surrounding the Fed’s policy stance.
- The recent US labor data increased the probability of a 50-basis point Fed rate cut to 74.5% in September.
- BoE Governor Bailey mentioned after the policy decision that the overall inflation trajectory is now closer to the 2% target.
GBP/USD edges lower to near 1.2790 during the Asian session on Monday, which could be attributed to the downside of the US Dollar (USD). The Greenback faces challenges due to increased expectations of the Federal Reserve’s (Fed) reducing interest rates in September.
The CME's FedWatch Tool shows a rise in the probability of a 50-basis point rate cut on September 18, increasing to 74.5% from 11.5% a week earlier. This shift is attributed to disappointing US jobs market data and a larger-than-expected contraction in factory activity, as reflected by the ISM Manufacturing PMI, released on Friday.
US Nonfarm Payrolls (NFP) increased by 114K in July from the previous month of 179K (revised down from 206K). This figure came in weaker than the expectation of 175K, data showed on Friday. Meanwhile, the US Unemployment Rate rose to the highest level since November 2021, coming in at 4.3% in July from 4.1% in June. Additionally, the US ISM Manufacturing Purchasing Managers Index (PMI) tumbled to an eight-month low of 46.8 in July.
The Pound Sterling (GBP) faced challenges as the Bank of England (BoE) delivered a broadly expected 25-basis point rate cut at its August meeting held on Thursday. Additionally, BoE Governor Andrew Bailey noted that the increase in the minimum wage has not been detrimental from their viewpoint. He mentioned that the overall inflation trajectory, including upside risks, is now closer to the 2% target.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | 0.04% | -1.14% | -0.02% | 0.12% | -0.03% | -0.51% | |
| EUR | 0.12% | 0.07% | -1.17% | -0.04% | 0.24% | -0.02% | -0.50% | |
| GBP | -0.04% | -0.07% | -1.19% | -0.09% | 0.17% | -0.09% | -0.57% | |
| JPY | 1.14% | 1.17% | 1.19% | 1.13% | 1.19% | 1.11% | 0.65% | |
| CAD | 0.02% | 0.04% | 0.09% | -1.13% | 0.18% | -0.00% | -0.66% | |
| AUD | -0.12% | -0.24% | -0.17% | -1.19% | -0.18% | -0.26% | -0.74% | |
| NZD | 0.03% | 0.02% | 0.09% | -1.11% | 0.00% | 0.26% | -0.48% | |
| CHF | 0.51% | 0.50% | 0.57% | -0.65% | 0.66% | 0.74% | 0.48% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher 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 economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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