- GBP/USD remains stable on the decisions of the BoE and the Fed.
- Confidence among US homebuilders increases, mortgage rates could fall if the Fed eases.
- UK inflation data key for sterling ahead of BoE decision.
- The GBP/USD pair is under pressure as an unexpected UK CPI could upset BoE policy.
The British pound is losing strength and falling against the US dollar, as traders prepare for the announcement of monetary policy decisions by the main central banks. The Bank of England and the US Federal Reserve are expected to keep rates unchanged, although a “hawkish tilt” from the Fed could weigh on the British pound; The GBP/USD pair is trading at 1.2727, down 0.04% on the day.
The Pound is awaiting the decisions of the Fed and the BoE, since British inflation could set the tone
This week, the US economic agenda will feature data from the real estate sector in the first two days of the week. Data from the National Association of Home Builders (NAHB) revealed that homebuilder confidence rose in March to its highest level since July 2023, while mortgage rates fell, on expectations that the Fed will begin to relax its policy. The NAHB market index stood at 51 points, compared to 48 in February.
On the other hand, British inflation will be published on Wednesday, one day before the BoE decision. The Consumer Price Index (CPI) for February is expected to fall from 4% to 3.5% year-on-year, while the underlying figures are estimated at 4.6% year-on-year, down from 5.1%.
If inflation in the UK cools as estimated, this could be negative for the Pound, which would likely come under pressure later on Wednesday when the Fed announces its decision and updates its forecasts. The data could influence Thursday's BoE decision and tip the UK central bank slightly dovish.
On the other hand, higher-than-expected inflation in Britain could support GBP/USD higher as the BoE sticks to the mantra of keeping rates “higher for longer.”
GBP/USD Price Analysis: Technical Outlook
Since hitting its year-to-date high at 1.2894, the GBP/USD pair has fallen more than 1.30%. If sellers push prices below 1.2700, it would open the door to challenge the dynamic support of the 50-day moving average (DMA) at 1.2685. Once the 100-DMA at 1.2607 is broken, followed by the 200-DMA at 1.2590, further declines are in sight. Conversely, if buyers push the exchange rate above last Friday's high of 1.2758, further rises are seen at 1.2800.
Pound Sterling FAQ
What is the Pound Sterling?
The British Pound (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, with 12% of all transactions and an average of $630 billion per day, according to 2022 data.
Its key currency pairs are GBP/USD, also known as “Cable”, which represents 11% of the forex market, GBP/JPY, or the “Dragon” as it is known to traders (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
How do Bank of England decisions influence the Pound Sterling?
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 achieving its main objective of “price stability”, that is, a stable 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 tries to contain it by raising interest rates, which makes access to credit more expensive for individuals and companies. This tends to be 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 projects that generate growth.
How does economic data influence the value of the Pound?
The published data gauges the health of the economy and may influence the value of the Pound sterling. 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 Pound. Otherwise, if economic data is weak, the pound is likely to fall.
How does the trade balance affect the Pound?
Another significant data for the pound sterling 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 wishing 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.
