- GBP/USD surrenders intraday gains amid dismal market sentiment.
- The Fed seems certain to cut interest rates in September.
- The Pound Sterling will be influenced by UK labor market and inflation data.
The GBP/USD pair surrenders its intraday gains and falls back to near 1.2730 in Friday’s New York session. The Cable comes under pressure amid cautious market mood. The S&P 500 opens with some losses, exhibiting that the risk-appetite of investors is weak.
The US Dollar (USD) consolidates in a tight range, with investors focusing on how much the Federal Reserve (Fed) will reduce interest rates in the September meeting. According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that traders see a 56.5% chance that interest rates will be reduced by 50 bps in September.
Going forward, the next trigger for the US Dollar will be the United States (US) Consumer Price Index (CPI) data for July, which will be published on Wednesday. The inflation data will indicate whether price pressures are on track to return to the desired rate of 2%.
Meanwhile, the Pound Sterling will be influenced by the United Kingdom (UK) Employment data for three-months-ending July and the consumer inflation data for July, which will be published on Tuesday and Wednesday. The economic data will indicate whether the Bank of England (BoE) will deliver subsequent rate cuts in September.
The Cable is at a make or a break below the crucial figure of 1.2700. The major exhibits a Positive divergence formation on a daily timeframe in which the asset continues to build higher lows, while the momentum oscillator makes lower lows. This generally results in a resumption in the uptrend but it should be confirmed with more indicators.
The 14-day Relative Strength Index (RSI) finds cushion near 40.00, exhibiting signs of buying interest at lower levels.
The asset continues to hold the 200-day Exponential Moving Average (EMA), which trades around 1.2650.
More downside could appear if the asset breaks below the intraday low of 1.2665. This would expose the asset to June 27 low at 1.2613, followed by April 29 high at 1.2570.
On the flip side, a recovery move above August 6 high at 1.2800 would drive the asset towards August 2 high at 1.2840 and the round-level resistance of 1.2900.
GBP/USD daily chart
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 fluctuates above 1.0900 as volatility subsides
EUR/USD continues to trade in a narrow channel above 1.0900 in the American session on Friday. Major equity indexes recover from opening lows, limiting the US Dollar's gains and allowing the pair to hold its ground heading into the weekend.
GBP/USD recovers to 1.2750 area as USD struggles to gather strength
GBP/USD regains its traction and trades near 1.2750 following an earlier decline. As the market mood remains cautious ahead of the weekend, however, the pair struggles to gather further bullish momentum and remains on track to post weekly losses.
Gold climbs to $2,430 area as US yields push lower
Following a quiet European session, Gold (XAU/USD) gains traction in the American session and trades near$2,430. The benchmark 10-year US Treasury bond yield is down more than 1% on the day below 3.95%, helping XAU/USD push higher.
Bitcoin could decline following retest of key resistance level
Bitcoin's price retests the key resistance zone at $62,066, and rejection may continue to drive its downtrend. Ethereum's price experiences a brief rise before a potential downtrend continues.
Week ahead – US CPI to test market nerves, RBNZ might cut rates
The panic about the US economy being on the verge of a recession has mostly eased but markets remain jittery. Investors see a real risk that the Fed’s delay in cutting rates has made a downturn inevitable.