- GBP/USD holds steady around 1.3125 in Friday’s Asian session.
- Less dovish Fed and geopolitical risks might support the USD in the near term.
- The BoE said it could move more aggressively to cut rates if inflation pressures continued to ease.
The GBP/USD pair struggles to gain ground near 1.3125 during the Asian session on Friday. Traders prefer to wait on the sidelines ahead of the US employment data, including Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings, which are due later on Friday.
Shifting expectations for the US Federal Reserve’s (Fed) next move might lift the US Dollar (USD) against the Pound Sterling (GBP) in the near term. The US employment data might offer some hints about the size of the November Fed rate cut. Analysts estimated a 140k increase in the NFP report, while the Unemployment Rate and the Average Hourly Earnings growth remain steady at 4.2% and 3.8%, respectively. An upside surprise outcome could dampen the hope for a 50 basis point (bps) rate reduction in the November meeting.
The rising Middle East tensions could boost the safe haven flows and benefit the Greenback. CNN reported on Thursday that an attack in central Beirut killed nine people, marking Israel's first strike in the region since 2006. The Israeli military vows to continue targeting Hezbollah in Beirut and southern Lebanon, after more airstrikes in the capital on Thursday.
On the GBP’s front, the dovish comments by Bank of England (BoE) Governor Andrew Bailey on Thursday might undermine the GBP. Bailey said the prospect of the BoE becoming a “bit more aggressive” in cutting interest rates as the development of inflation continued to be good. The BoE is widely expected to cut the policy rate by 25 bps at the November meeting, and the odds of the December meeting increased.
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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