- GBP/USD kicks off the new week on a positive note, though the upside seems limited.
- A weaker risk tone lends support to the safe-haven USD and could act as a headwind.
- Reviving BoE rate cut bets might further contribute to capping the upside for the GBP.
The GBP/USD pair attracts some dip-buying during the Asian session on Monday and climbs back closer to mid-1.3100s in the last hour, though a combination of factors might cap any further gains.
The closely-watched US monthly employment details released on Friday suggested that the labor market momentum is slowing more than expected and added to concerns about the health of the US economy. This, in turn, tempers investors' appetite for riskier assets, which benefits the safe-haven US Dollar (USD) and acts as a headwind for the GBP/USD pair.
Meanwhile, a survey of recruiters showed that Britain's labour market cooled noticeably last month as job placements fell sharply and pay growth slowed. This backs the case for interest rate cuts from the Bank of England (BoE), which might further hold back bulls from placing aggressive bets around the British Pound (GBP) and keep a lid on the GBP/USD pair.
Investors now look forward to the release of the UK monthly jobs data due on Tuesday. In the meantime, the USD price dynamics will continue to play a key role in influencing the GBP/USD pair in the absence of any relevant market-moving economic data, either from the UK or the US on Monday.
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.
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