- GBP/USD hit another multi-year high on Thursday.
- The weakness of the Dollar in the general market has further boosted Cable.
- The British Pound’s recovery continues unabated despite the lack of UK data.
GBP/USD hit another multi-year high on Thursday, hitting a 31-month high of 1.3434 as the Pound is boosted by a sell-off in the Dollar. Risk appetite has returned to the high end thanks to better-than-expected US economic numbers, easing investor concerns about a possible economic slowdown.
The Federal Reserve’s (Fed) recent 50 basis point rate cut generated an undercurrent of concern in global markets, with some investors spooked by the possibility that the Fed’s rate cut was in response to an imminent economic slowdown in the US. Fed Chairman Jerome Powell insisted last week that the Fed’s double taper was not a quick response to possible recession data, but rather a preemptive move to help shore up the US labor market
Week-over-week U.S. Durable Goods Orders and Initial Jobless Claims helped bolster the Fed chief’s case, with both numbers better than expected and “soft landing” economic rhetoric holding steady . However, Friday’s Personal Consumption Expenditure (PCE) Price Index inflation release will attract a lot of attention and will be the true test of last week’s Fed rate cut.
US durable goods orders in August registered 0.0% month-on-month, well below the previous month’s revised 9.9%, but still ahead of the forecast for a 2.6% contraction. Initial jobless claims for the week ending September 20 also beat forecasts, recording 218K versus the expected 225K and down from the previous week’s revised 222K.
GBP/USD Price Forecast
With the British pound trading at multi-year highs, little relevant technical resistance stands in the way of the bulls. However, an extremely one-sided push towards the upper end has left the GBP/USD price action exposed to a potential flash decline as market velocity takes control. A buildup of short pressure in the current region could easily take bids below the 1.3100 level and towards the 50-day EMA at 1.3076.
GBP/USD Daily Chart
The British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded currency unit in the world, with 12% of all transactions and an average of $630 billion per day, according to 2022 data.
Its key currency pairs are GBP/USD, also known as “Cable”, which represents 11% of the forex market, GBP/JPY, or the “Dragon” as it is known to traders (3%), and EUR/GBP (2%). The pound sterling 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 achieving its main objective of “price stability”, that is, a stable 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 tries to contain it by raising interest rates, which makes access to credit more expensive for individuals and companies. This tends to be positive for the GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation is too low, it is a sign that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to make credit cheaper, so that companies borrow more to invest in projects that generate growth.
The published data gauges the health of the economy and may influence the value of the Pound sterling. Indicators such as GDP, manufacturing and services PMIs, and employment can influence the direction of the Pound.
A strong economy is good for the British pound. Not only does it attract more foreign investment, but it may encourage the Bank of England to raise interest rates, which will directly strengthen the Pound. Otherwise, if economic data is weak, the pound is likely to fall.
Another significant data 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 during a given period.
If a country produces highly sought-after exports, its currency will benefit exclusively from the additional demand created by foreign buyers wishing to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for 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.
