- The GBP/USD rises as the US dollar weakens in response to Moody’s to reduce US credit rating on a step.
- A series of weak economic indicators of the US has strengthened the expectations of additional features of fees by the Federal Reserve later this year.
- The sterling pound has been strengthened, supported by the United Kingdom’s GDP data published on Thursday that exceeded expectations.
The GBP/USD torque was recovered from the losses of the previous session, quoting close to the level of 1,3300 during the Asian session on Monday. The rebound is largely due to the renewed pressure on the US dollar (USD) after Moody’s Investors Service reduced US credit rating on a step, from AAA to AA1. The agency cited the increase in debt levels and the growing burden of interest payments as main concerns.
This movement is aligned with the previous sales of Fitch Ratings in 2023 and Standard & Poor’s in 2011. Moody’s now predicts that the federal debt of the US will increase to approximately 134% of GDP by 2035, from 98% in 2023. It is projected that the federal deficit will be extended to almost 9% of GDP, drive debt, increase in rights spending and decreased tax revenue.
In addition, a series of weak economic indicators of the US has reinforced the expectations of feat cuts by the Federal Reserve later this year. Notably, the consumer’s feeling index of the University of Michigan fell dramatically to 50.8 in May from 52.2 in April, the lowest level since June 2022 and the fifth consecutive monthly fall. Analysts had predicted an increase to 53.4.
Despite these winds against, the US dollar can find some support for the decrease in global commercial tensions. A preliminary commercial agreement between the US and China proposes significant tariff reductions: Washington is willing to lower tariffs on Chinese products from 145% to 30%, while Beijing will cut tariffs on US imports from 125% to 10%.
The feeling of the market is also promoted by a renewed optimism on a possible nuclear agreement between the US and Iran and the next conversations between US President Donald Trump and Russian President Vladimir Putin, aimed at displaying the conflict in Ukraine.
Meanwhile, the sterling pound (GBP) has gained impulse, backed by the United Kingdom GDP data stronger than expected published on Thursday. Both monthly and quarterly figures showed solid economic growth, reinforcing the expectations that the Bank of England (BOE) can maintain its current interest rates posture if inflation remains persistent or accelerates even more.
LIBRA ESTERLINA FAQS
The sterling pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most commercialized currency exchange unit (FX) in the world, representing 12% of all transactions, with an average of $ 630 billion a day, according to data from 2022. Its key commercial peers are GBP/USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The sterling pound is issued by the Bank of England (BOE).
The most important factor that influences the value of sterling pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions itself 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, which makes access to credit for people and companies more expensive. This is generally positive for sterling pound, since higher interest rates make the United Kingdom 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 down. In this scenario, the Bank of England will consider lowering interest rates to reduce credit, so that companies will borrow more to invest in projects that generate growth.
Published data measure the health of the economy and can affect the value of sterling pound. Indicators such as GDP, manufacturing and services PMI and employment can influence the direction of the sterling pound.
Another important fact that is published and affects the pound sterling is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to buy 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.
