- GBP/USD draws support from USD price action, although it lacks bullish conviction.
- The BoE Governor predicted four rate cuts in 2025 and helped cap GBP gains.
- Traders also seem reluctant to open aggressive bets ahead of Friday’s US NFP report.
The GBP/USD pair trades with a slightly positive bias for the third day in a row and remains stable just above the 1.2700 mark during the Asian session on Thursday. Spot prices, however, lack bullish conviction and remain below the weekly high touched on Monday.
The US Dollar (USD) extends its sideways consolidation move as traders choose to stay on the sidelines ahead of the release of the US Non-Farm Payrolls (NFP) report on Friday. This, in turn, is considered a key factor acting as a tailwind for the GBP/USD pair. That said, expectations of a less dovish Federal Reserve (Fed) cause a modest rebound in US Treasury yields and act as a tailwind for the Dollar.
Investors now appear convinced that US President-elect Donald Trump’s tariff plans and expansionary policies will boost inflation. Additionally, comments from a number of influential FOMC members on Wednesday, including Fed Chair Jerome Powell, suggested that the US central bank will take a cautious stance on rate cuts. This leads to a modest recovery in US Treasury yields and acts as a tailwind for the USD.
Apart from this, lingering geopolitical risks arising from the worsening conflict between Russia and Ukraine and fears of a trade war offer additional support to the safe-haven dollar. British Pound (GBP) bulls, meanwhile, remain on the sidelines awaiting the four interest rate cuts expected in 2025 by Bank of England (BoE) Governor Andrew Bailey. This further contributes to capping the GBP/USD pair and justifies caution for the bulls.
Looking ahead, traders now await the release of the UK Construction PMI for some impetus ahead of the usual US Weekly Initial Jobless Claims data later during the early North American session. However, the immediate market reaction is more likely to be limited as attention remains focused on monthly US employment data, which will guide Fed policymakers in their next policy decision.
The 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 may 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 data 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.
