GBP/USD skids into new ten-week low ahead of global PMI prints

GBP/USD backslid half of a percent on Wednesday.
Global PMIs including the UK and the US are due throughout Thursday.
Central banker appearances to dominate headlines as the week winds down.

GBP/USD shed another half of a percent on Wednesday, tipping into a fresh ten-week low and grinding down toward the 1.2900 handle. Purchasing Managers Index (PMI) figures from both the UK and the US are due on a rolling schedule throughout Thursday, and investors will be keeping an eye out for a slew of central banker appearances from both the Bank of England (BoE) and the Federal Reserve (Fed).

The Pound Sterling swooned on Wednesday, declining further as GBP markets buckle under the weight of a broad-market Greenback recovery and investors brace for an overall decline in UK PMI prints for October.

Median market forecasts are expecting a slight downtick in UK activity numbers, with October’s Services PMI specifically expected to ease to 52.2 from 52.4 the previous month. On the US side, median market forecasts expect October’s US PMI figures to come in mixed, with the Manufacturing component expected to rise to 47.5 from 47.3, while the Services PMI component is expected to tick slightly lower to 55.0 from 55.2.

GBP/USD price forecast

GBP/USD has extended its bearish momentum, falling to the 1.2910 level, as downside pressure persists. The pair has recently broken below the 50-day EMA, which sits at 1.3079, indicating that the bears remain in control. The next key support level to watch is the 200-day EMA at 1.2847. A break below this level could signal further losses towards the 1.2800 psychological level. The recent price action shows a series of lower highs and lower lows, confirming the bearish trend that has been developing since the October highs.

The MACD is further confirming this bearish sentiment, with the MACD line crossing below the signal line and the histogram deepening in negative territory. This suggests that selling pressure could continue in the near term, with little sign of a bullish reversal. However, if the pair manages to hold the 200-day EMA, a bounce-back towards the 50-day EMA could offer short-term relief. Traders should remain cautious as the overall trend points to further downside risk unless key support levels hold.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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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