- GBP/USD appreciates while the US Dollar corrects lower due to the increased likelihood of a Fed rate cut in December.
- Traders await US Producer Price Index data for November on Thursday to gain new momentum.
- The UK RICS House Price Balance rose 25% in November, up from a 16% rise in October.
GBP/USD recovers its recent losses recorded in the previous session, trading around 1.2770 during Asian hours on Thursday. The GBP/USD pair gains ground as the US Dollar (USD) corrects lower after breaking its four-day winning streak despite higher US Treasury yields.
The Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, is trading around 106.50 with 2- and 10-year US Treasury bond yields standing at 4.16% and 4.28%. , respectively, at the time of writing.
The US dollar faces some challenges as the recent US CPI report appears not to be enough to prevent the Federal Reserve (Fed) from cutting rates in December. The CME FedWatch tool suggests a nearly 99% probability of Fed rate cuts by 25 basis points on December 18. Traders are focusing their attention on the US November Producer Price Index (PPI) for fresh momentum, due out later on Thursday.
The US Consumer Price Index (CPI) rose to 2.7% year-on-year in November from 2.6% in October. The headline CPI reported a reading of 0.3% month-on-month, in line with market consensus. Meanwhile, core CPI, which excludes volatile food and energy prices, rose 3.3% year-on-year, while core CPI rose 0.3% month-on-month in November, as expected.
In the United Kingdom (UK), the RICS House Price Balance rose 25% in November, up from a 16% rise in October, beating market expectations of a 19% rise. Published by the Royal Institution of Chartered Surveyors, this survey highlights trends in house prices in the UK. It reflects the strength of the housing market in the UK, which often serves as an indicator of the broader economy due to its sensitivity to the business cycle.
The British Pound (GBP) gains ground due to growing market confidence that the Bank of England (BoE) will keep its interest rates unchanged at 4.75% in the December monetary policy decision. BoE policymakers are expected to vote to keep interest rates unchanged. Traders are likely to focus on the UK’s monthly October Gross Domestic Product (GDP) data due out on Friday.
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.
