- GBP/USD weakens to around 1.2955 in the early stages of the Asian session on Thursday.
- The UK Labor government increased taxes by £40 billion in the new budget plan.
- Preliminary US GDP expanded at an annualized rate of 2.8% in the third quarter.
The GBP/USD pair extends the decline to around 1.2955 during the early stages of the Asian session on Thursday. The pound sterling (GBP) falls after the announcement of the UK budget. Focus will turn to US Personal Consumption Expenditure (PCE) Price Index data later on Thursday.
The United Kingdom’s new Labor government presented its first budget on Wednesday, which includes a £40 billion tax increase to plug a shortfall in public finances and allow investment in public services, according to CNBC. One of the measures projected to be one of the most revenue-generating for the UK Treasury is an increase in the amount employers pay into National Insurance (NI), an income tax.
The US Gross Domestic Product (GDP) for the third quarter was below expectations. ADP’s Employment Change report for October revealed that private companies hired more people than expected. According to the CME FedWatch tool, traders have priced in a nearly 95.2% probability of a 25 basis point rate cut by the Fed at the November meeting.
The publication of inflation data PCE US Federal Reserve (Fed) rate cut path , while core PCE is estimated to see an increase of 0.3% month-on-month in the same reporting period. A weaker than expected result could trigger hopes for deeper rate cuts and could put some selling pressure on the USD.
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 per 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.