- The Pound Sterling holds gains near 1.2500 even though the US Dollar recovers sharply.
- BoE Governor Andrew Bailey expects a sharp drop in April’s inflation.
- US GDP grew at a slower pace of 1.6% in the first quarter this year.
The Pound Sterling (GBP) aims to hold strength near the psychological resistance of 1.2500 against the US Dollar (USD) in Thursday’s early American session. The GBP/USD struggles as the US Dollar rebounds sharply after the United States Q1 Gross Domestic Product (GDP) report showed that inflation accelerated sharply. The preliminary GDP Price Index rose sharply by 3.1% from the prior reading of 1.7%. This has prompted expectations that the Federal Reserve (Fed) will keep interest rates restrictive for a longer period.
Meanwhile, the US economy grew at a slower pace of 1.6% from expectations of 2.5% and the former reading of 3.4%. This has deepened concerns over the US economic outlook.
On the United Kingdom front, Investors’ confidence in the UK economy's outlook improved after the preliminary PMI report from S&P Global/CIPS for April showed that new business volumes increased across the private sector as a whole. The agency also reported that the rate of growth of overall activity was the strongest since May 2023. However, the expansion was centred on the service sector, as manufacturers saw a moderate downturn in order books.
Despite the recent upturn, downside risks to the Pound Sterling remain high as investors expect the Bank of England (BoE) will pivot to interest-rate cuts before the Federal Reserve (Fed) does so. Last week, BoE Governor Andrew Bailey said: “I expect next month's inflation number will show quite a strong drop.” Bailey added that Oil prices haven't leaped as much as expected and that the effect of the Middle-East conflict “is less than feared.”
Daily digest market movers: Pound Sterling struggles to hold gains as US Dollar rises
- The Pound Sterling hovers near the psychological resistance of 1.2500 against the US Dollar. A sharp recovery in the US Dollar has built slight pressure on the GBP/USD pair. The US Dollar moves higher as the higher GDP Price Index has offset the impact of weak GDP growth and a poor preliminary US PMI report that raised doubts over the strong economic outlook of the economy. Meanwhile, similar data for the UK presented a recovery in overall private-sector activity fueled by the Services sector.
- The US PMI report showed on Tuesday that surprisingly both the Manufacturing and Services PMI were down from the prior readings. The Manufacturing PMI even fell below the 50.0 threshold, signalling a contraction. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said: “The US economic upturn lost momentum at the start of the second quarter, with the flash PMI survey respondents reporting below-trend business activity growth in April. Further pace may be lost in the coming months, as April saw inflows of new business fall for the first time in six months and firms’ future output expectations slipped to a five-month low amid heightened concern about the outlook.
- Despite uncertainty over the US economic outlook, speculation that the Federal Reserve will begin lowering interest rates after the September meeting remains firm. Going forward, investors will focus on the core Personal Consumption Expenditure Price Index (PCE) data for March.
- For more clarity over Fed’s rate-cut timing, investors will wait for the core PCE inflation data for March, to be published on Friday. The underlying inflation data is estimated to have grown steadily by 0.3% on month, with annual figures softening to 2.6% from the 2.8% recorded in February.
Technical Analysis: Pound Sterling trades close to 1.2500
The Pound Sterling extends its recovery to the crucial resistance of 1.2500 against the US Dollar. The GBP/USD pair moves sharply higher after finding strong buying interest near a five-month low of around 1.2300. The near-term outlook of the Cable is still bearish as the 20-day Exponential Moving Average (EMA) at 1.2509 is declining.
The 14-period Relative Strength Index (RSI) rebounds above 40.00, suggesting that a bearish momentum has concluded for now. However, the bearish bias remains intact.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD remains deep in the red below 0.6500 on US-China trade risks
AUD/USD remains under heavy selling pressure below 0.6500 in the Asian session on Tuesday, reversing some losses. Trump's threatened additional 10% tariffs on China, weighinmg heavily on risk sentiment and the China-proxy Australian Dollar while lifting the haven demand for the US Dollar.
USD/JPY ranges around 154.00 as US Dollar strength offsets risk aversion
USD/JPY remains confined in a familiar range at around 154.00 in Tuesday's Asian trading. Fresh tensions surrounding US-China trade war underpin the safe-haven US Dollar, limiting the risk-off sentiment-driven gains in the Japanese Yen. Fed Minutes are next in focus.
Gold rebounds from one-week low of $2,605 on likely US-China trade war
Gold price rebounds toward $2,650 in the Asian session on Tuesday, having hit weekly lows at $2,605 in early dealings. US President-elect Donald Trump announced tarrifs on Canada, Mexico and China, effective from January 20, ramping up the safe-haven flows into the bright metal.
TRON Foundation becomes the largest investor in Donald Trump's World Liberty Financial
Donald Trump-backed DeFi platform, World Liberty Financial, received new support on Monday after Tron founder Justin Sun announced that the Tron Foundation had invested $30 million into the president-elect's platform, making them its largest financial supporter.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.