- GBP/USD remained in familiar territory just above 1.2500 on Monday.
- The lack of notable data on the UK side will limit the Cable’s already meager flows.
- Overall market volumes remain tepid as investors take the end of the year off.
GBP/USD retreated on Monday, starting the new trading week with a new day lower. The pair fell about a third of a percent, retreating below 1.2550 as bids remain stuck in a short-term congestion pattern at the lower end of recent price action. The UK data release schedule this week lacks significant prints, leaving the Cable at the mercy of broader market flows in a tepid year-end environment.
Outside of some general profit taking and long-term position management, global market volumes are heavily constrained by the year-end holiday season. Markets will be even more limited in the middle of the week, when global markets will close for the New Year holiday.
This week, the main data highlight will be the US ISM PMI figures for December, which will be released on Friday. The December US ISM Manufacturing PMI is projected to decline slightly to 48.3 from 48.4. Additionally, several Federal Reserve (Fed) officials are scheduled to speak during the latter part of the week, as they work to clarify the Fed’s recent shift toward lower-than-expected projections for the number of anticipated rate cuts in 2024. .
GBP/USD Price Forecast
With Cable price action continuing in a sideways range just above 1.2500, GBP/USD slides into a short-term sideways channel. However, Cable traders should be on the lookout for a quick breakout to either side once the new year begins in earnest.
GBP/USD has not made much progress to the downside after hitting multi-month lows in November, however, a bullish rally faded before bids could challenge the 200-day EMA, which is now is falling through 1.2800.
GBP/USD Daily Chart
British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (AD 886) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit 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, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its main objective of “price stability” – a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for sterling, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider lowering interest rates to make credit cheaper, so that companies will take on more debt to invest in projects that generate growth.
The data released measures the health of the economy and can affect the value of the pound. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the Pound.
Another important piece of information that is published and affects the British Pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly in-demand export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
