- GBP/USD appreciates as the US Dollar loses ground amid lower yields.
- Traders await weekly Initial Jobless Claims and Q4 Gross Domestic Product Annualized data from the US on Thursday.
- The weaker UK CPI data has strengthened expectations that the Bank of England may consider easing its monetary policy.
GBP/USD recovers its recent losses from the previous session, climbing to around 1.2910 during Thursday’s Asian session. The pair is strengthening as the US Dollar (USD) remains under pressure due to declining Treasury yields, with the 2-year and 10-year yields hovering at 4.0% and 4.34%, respectively. Market participants are closely monitoring upcoming US economic data, including weekly Initial Jobless Claims and the final Q4 Gross Domestic Product (GDP) Annualized report, set for release later in the day.
However, the upside of the GBP/USD pair could be limited as risk-off sentiment rises amid escalating US trade policies. Late Wednesday, US President Donald Trump signed an order imposing a 25% tariff on auto imports, set to take effect on April 2, with collections beginning the following day. However, a one-month reprieve will be granted for auto parts imports. The move has intensified global trade tensions, adding uncertainty to the markets.
Adding to trade-war concerns, St. Louis Fed President Alberto Musalem issued strong remarks on Wednesday, joining other Federal Reserve policymakers in criticizing the tariff policies. Musalem warned that these measures are unsettling the US economy, increasing uncertainty, and pushing inflation higher.
Meanwhile, the Pound Sterling (GBP) weakened following the release of the UK Consumer Price Index (CPI) report for February, which showed inflation cooling faster than expected. The softer CPI figures have fueled speculation that the Bank of England (BoE) may lean toward monetary easing.
Headline CPI rose 2.8% year-over-year, missing the 2.9% forecast and cooling from January’s 3.0%. Core CPI, which excludes volatile items, increased by 3.5%, below expectations of 3.6% and the previous 3.7% reading. On a monthly basis, headline CPI grew 0.4% after a 0.1% decline in January, falling short of the 0.5% estimate. However, services sector inflation—closely watched by BoE officials—remained steady at 5%.
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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