GBP/USD trades with mild losses below 1.3400 ahead of US PMI data
|- GBP/USD trades with mild negative bias near 1.3370 in Tuesday’s Asian session.
- Lower expectations of a jumbo Fed rate cut lift the US Dollar.
- BOE’s Greene said strong UK consumers could fuel price pressures.
The GBP/USD pair struggles to gain ground around 1.3370 during the Asian session on Tuesday. Less dovish remarks from Federal Reserve (Fed) Chair Jerome Powell provide some support to the Greenback and drag the major pair lower. Investors brace for the US September ISM Manufacturing Purchasing Managers Index (PMI) data and the speeches from Fed’s Raphael Bostic and Lisa Cook later on Tuesday.
Fed Chair Jerome Powell said on Monday that the US central bank intends to do what it takes to keep the economy "in solid shape," but it is not in a hurry and will lower its benchmark rate ‘over time.’ Atlanta Federal Reserve President Raphael Bostic noted on Monday he would be open to another 50 basis point (bps) rate reduction at the November meeting if upcoming data show job growth slowing faster than expected. However. Bostic said he previously penciled in just one more 25 bps rate cut this year.
The US labor market data will take center stage on Friday and will likely influence the US rate cut path. The US Nonfarm Payrolls (NFP) is estimated to see 140K job additions in September, while the Unemployment Rate is forecast to remain unchanged at 4.2%. If the jobs report showed a weaker-than-expected outcome, this could prompt the central bank to consider cutting rates more deeply, which might exert some selling pressure on the USD.
On the Cable front, the Bank of England (BoE) policymaker Megan Greene said that a consumption-driven recovery in the UK could set off a renewed bout of inflation, but further interest rate cuts are likely as prices are “moving in the right direction, per Bloomberg. Nonetheless, traders have lowered their bets on a BOE rate cut in November in the last few days.
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, also known as ‘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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