- GBP/USD receives support as investors consider UK markets a more attractive investment option.
- BoE is expected to start lowering interest rates at the August meeting.
- The US Dollar strengthens due to increased risk aversion triggered by the attack on former US President Donald Trump.
GBP/USD trades around 1.2960 during the Asian session on Tuesday, remaining close 13-month high at 1.2995 recorded in the previous session. The British Pound (GBP) may appreciate further as investors consider UK markets a more attractive investment destination compared to US markets, which face political uncertainties. The decisive victory of Keir Starmer’s Labour Party has assured stable fiscal policies and smooth ministerial appointments.
The increased uncertainty over the timeframe for Bank of England (BoE) rate cuts has been a significant factor in the GBP’s strength. Traders anticipate the BoE to start lowering interest rates at the August meeting.
Traders assess the upcoming economic data on Wednesday that could impact the Bank of England's monetary policy stance. The Consumer Price Index (YoY) is projected to hold steady at the BoE's 2% target, with core inflation anticipated to dip to 3.4%. Additionally, the Retail Price Index is likely to see a decline, marking the fourth drop in five months.
The US Dollar (USD) strengthened amid rising risk aversion triggered by the attempted assassination of former US President Donald Trump on Saturday. However, cooling US inflation strengthened bets for a Federal Reserve rate cut in September, which may limit the upside of the Greenback.
According to CME Group’s FedWatch Tool, markets now indicate an 85.7% probability of a 25-basis point rate cut at the September Fed meeting, up from 71.0% a week earlier.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays defensive below 1.0900 ahead of German ZEW survey
EUR/USD is on the defensive below 1.0900 in the early European session on Tuesday. The renewed US Dollar demand weighs on the pair, as risk sentiment remains in a tepid spot ahead of Germany's ZEW survey and the key US Retail Sales data.
GBP/USD holds lower ground near 1.2950, US data awaited
GBP/USD is trading close to 1.2950 in European trading on Tuesday, reversing from the 2024 high of 1.2995 recorded in the previous session. The pair is pressured by a broad US Dollar uptick, as markets turn cautious ahead of the US Retail Sales data and Fedspeak.
Gold gathers pace to retest all-time high at $2,450
Gold price is looking to extend previous gains early Tuesday, having clinched a new two-month high at $2,440 a day ago. Growing expectations that a US Federal Reserve interest-rate cut in September is a done deal continue to underpin the non-interest-bearing Gold price.
Litecoin price sets for a rally following the breakout of a falling wedge
Litecoin price broke above the falling wedge pattern on Monday, trading 1.36% higher on Tuesday. On-chain data highlights a capitulation event for LTC on July 15, potentially signaling forthcoming bullish momentum.
Trading the week ahead
This week presents several high-probability opportunities to closely monitoring. The Canadian CPI print is one of the main events. The BoC has expressed concern about the impact of higher interest rates on mortgage holders, with about 50% yet to remortgage.