- GBP/USD continues its struggle to gain meaningful traction on Tuesday.
- Bets on a BoE rate cut in August act as a headwind amid modest USD strength.
- Traders are also looking to wait on the sidelines ahead of the UK election on Thursday.
The GBP/USD pair extends its sideways consolidation move during the Asian session on Tuesday and remains confined in a familiar range held for the past two weeks or so. Spot prices are currently trading around the confluence region of 1.2655-1.2645, which comprises the 50-day and 100-day simple moving averages (SMA), amid anxiety over the upcoming UK general election on Thursday.
Meanwhile, the Bank of England’s (BoE) dovish pause in June, which raised bets for a rate cut at the August policy meeting, continues to undermine the British Pound (GBP). The US Dollar (USD), on the other hand, is building on the solid overnight rebound from a multi-day low and appears to act as a headwind for the GBP/USD pair. The benchmark 10-year government bond yield hit its highest level in a month on Monday amid concerns that the Trump administration’s imposition of aggressive tariffs could fuel inflation and trigger higher interest rates.
Apart from this, this, along with a softer tone around US equity futures, provides some support to the safe-haven dollar. That said, the growing acceptance that the Federal Reserve (Fed) will begin its rate-cutting cycle in September keeps a lid on any further rise in US bond yields. Expectations were reaffirmed by the US ISM manufacturing PMI on Monday, which showed that the US manufacturing sector contracted for the third consecutive month in June. This, along with signs that inflation in the US is easing, should allow the US central bank to start cutting borrowing costs.
Traders might also prefer to wait for further clues on the Fed’s rate cut path before positioning for the next directional move. Therefore, the focus will remain on Fed Chair Jerome Powell’s speech later on Tuesday and the FOMC meeting minutes on Wednesday. Apart from this, the monthly US employment details, popularly known as the Non-Farm Payrolls (NFP) report, due out on Friday, will play a key role in influencing the USD price dynamics in the near term.
The British Pound 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 currency unit in the world, accounting for 12% of all transactions and an average of $630 billion a day, as of 2022.
Its key currency pairs are GBP/USD, also known as the “Cable,” which accounts for 11% of the forex market, GBP/JPY, or the “Dragon” as it is known to traders (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 British Pound 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”, i.e. a stable inflation rate of around 2%. Its main tool for achieving this is the adjustment of interest rates.
When inflation is too high, the Bank of England tries to contain it by raising interest rates, making credit more expensive for individuals and businesses. This is generally 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 growth-generating projects.
The data released gauges the health of the economy and can influence the value of the Pound. 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 British Pound. Conversely, if economic data is weak, the British Pound is likely to fall.
Another significant indicator for the 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 sought-after exports, its currency will benefit exclusively from the additional demand created by foreign buyers who wish 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.
