GBP/USD remains subdued near 1.2300, 14-month lows, US NFP eyed
- GBP/USD continues to decline as concerns over the UK’s fiscal and inflation outlook intensify.
- The British Pound failed to gain support, even amid a surge in long-term UK bond yields.
- The US Nonfarm Payrolls is expected to decrease to 160K in December, down from the previous 227K.
GBP/USD remains subdued for the fourth successive day, trading around 1.2300 during the Asian session on Friday. The GBP/USD pair dropped to 1.2238 on Thursday, marking its lowest level since November 2023, as the Pound Sterling (GBP) struggled under mounting concerns about the United Kingdom’s (UK) fiscal and inflation outlook, which weighed heavily on investor sentiment.
Despite a surge in long-term UK bond yields— with the 30-year yield hitting its highest level since 1998 and the 10-year yield reaching levels last seen in 2008—the British Pound failed to find support. Typically, higher yields strengthen a currency, but in this case, the decline reflects capital flight driven by fears of persistent inflation and fiscal instability.
On Thursday, UK Chief Secretary to the Treasury Darren Jones stated that UK financial markets are continuing to function in an "orderly way." However, markets reacted by selling the Pound Sterling further and increasing expectations of additional rate cuts by the Bank of England (BoE) later this year.
Additionally, the downside risks for the GBP/USD pair increased as the US Dollar (USD) gained support from hawkish Federal Open Market Committee (FOMC) Meeting Minutes and uncertainties surrounding tariff plans proposed by the incoming Trump administration. The US Dollar Index (DXY), which tracks the USD’s performance against six major currencies, remains steady above 109.00 at the moment of writing.
The latest FOMC Meeting Minutes indicated that policymakers agree that the process could take longer than previously anticipated due to recent hotter-than-expected readings on inflation and the effects of potential changes in trade and immigration policy under President-elect Trump’s administration.
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.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
