- GBP/USD may face challenges as traders adopt caution ahead of US Consumer Price Index data due on Wednesday.
- The CME FedWatch tool suggests an 85.8% probability of Fed rate cuts by 25 basis points in December.
- Next Friday’s data is expected to indicate a rebound in the UK economy during October.
GBP/USD remains stable for the second day in a row, trading around 1.2750 during the Asian session on Tuesday. The risk-sensitive pair could face challenges as the US Dollar (USD) continues to gain ground due to market caution ahead of the US Consumer Price Index (CPI) data scheduled to be released on Wednesday.
The Federal Reserve Bank of New York highlighted in its latest consumer survey summary that American consumers are navigating uncertain economic expectations. The survey indicated a notable improvement in consumers’ outlook on their financial situations and the fiscal condition of the federal government, along with a significant change in expectations about debt affordability and credit conditions.
Friday’s US November NFP data showed a robust increase of 227,000, well above expectations, and stable average hourly earnings growth of 0.4% MoM. Traders now price the possibility of Fed rate cuts by 25 basis points on December 18 at nearly 85.8%, according to the CME FedWatch tool.
The British Pound (GBP) remains near four-week highs as investors await key economic data and upcoming central bank meetings. Next Friday’s data is expected to show a rebound in the UK economy in October, along with signs of recovery in the manufacturing sector. The Bank of England (BoE) is widely anticipated to leave interest rates unchanged at its December 19 meeting.
On Monday, the BoE’s deputy governor for markets and banking, Sir Dave Ramsden, stressed the need for the central bank to remain “vigilant” amid growing uncertainty around the UK’s economic outlook.
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 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.
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