GBP/USD rises toward 1.2800 due to rising odds of a Fed rate cut in September
|- GBP/USD extends its upside as the Fed is widely expected to deliver a rate cut in September.
- Kansas City Fed President Jeffrey Schmid stated that reducing monetary policy could be "appropriate" if inflation remains low.
- The upside of the pair could be restrained due to increased safe-haven flows amid heightened Middle-East tensions.
GBP/USD trades around 1.2770 during the early European hours, appreciating for the second successive day on Friday. This upside of the GBP/USD pair could be attributed to the rising expectations of the US Federal Reserve (Fed) implementing a rate cut in September.
According to the CME FedWatch tool, markets are now fully pricing in a quarter-basis point interest rate cut by the Fed in September. Additionally, the decline in US Treasury yields is exerting additional pressure on the Greenback, with yields standing at 4.01% and 3.97%, respectively, at the time of writing.
On Thursday, Kansas City Fed President Jeffrey Schmid stated that reducing monetary policy could be "appropriate" if inflation remains low. Schmid noted that the current Fed policy is "not that restrictive" and that while the Fed is close to its 2% inflation goal, it has not yet fully achieved it, per Reuters.
Across the pond, the Pound Sterling (GBP) encountered challenges following the Bank of England's (BoE) decision last week to cut interest rates from a 16-year high. The BoE reduced rates by a quarter-point to 5% after a narrow vote among policymakers, who were divided on whether inflation pressures had adequately eased.
The upside of the GBP/USD pair could be limited due to increased safe-haven flows amid heightened geopolitical tensions in the Middle East. Israeli forces intensified their airstrikes on the Gaza Strip, resulting in at least 40 casualties on Thursday, according to Palestinian medics.
This escalation has further intensified the conflict between Israel and Hamas-led militants, as Israel prepares for the possibility of a broader regional conflict following the killing of senior members of militant groups Hamas and Hezbollah.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.07% | -0.18% | -0.19% | -0.02% | -0.13% | -0.19% | 0.03% | |
| EUR | 0.07% | -0.08% | -0.10% | 0.06% | -0.05% | -0.12% | 0.11% | |
| GBP | 0.18% | 0.08% | -0.02% | 0.13% | 0.02% | -0.04% | 0.21% | |
| JPY | 0.19% | 0.10% | 0.02% | 0.17% | 0.08% | -0.01% | 0.25% | |
| CAD | 0.02% | -0.06% | -0.13% | -0.17% | -0.12% | -0.18% | 0.07% | |
| AUD | 0.13% | 0.05% | -0.02% | -0.08% | 0.12% | -0.06% | 0.17% | |
| NZD | 0.19% | 0.12% | 0.04% | 0.01% | 0.18% | 0.06% | 0.25% | |
| CHF | -0.03% | -0.11% | -0.21% | -0.25% | -0.07% | -0.17% | -0.25% |
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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