- GBP/USD weakens near 1.3265 in the early stages of the Asian session on Thursday.
- Risk aversion sentiment and upbeat US ADP report boost the Dollar.
- A less dovish stance from the BoE could limit the pair’s decline.
The GBP/USD pair extends its decline to around 1.3265 during the early stages of the Asian session on Thursday. Renewed demand for the US Dollar (USD) amid rising geopolitical tensions in the Middle East lends some support to the major pair. September US Services Purchasing Managers’ Index (PMI), weekly Initial Jobless Claims and final S&P Global Services PMI will be in focus on Thursday.
Iran fired more than 180 missiles at Israel on Tuesday, its largest direct attack against the country. Israel and the United States vowed retaliation for the attack. A sign that conflict in the region is intensifying and fear of wider war drives safe haven flows, benefiting the Dollar against the British Pound (GBP).
ADP’s US employment change data for September was better than expected, with 143,000 new jobs added. This figure was above the median forecast of 120,000 and the revised August figure of 103,000. The focus will be on US employment data on Friday for new catalysts.
The expectation that the Bank of England’s (BoE) easing cycle will be less than that of other central banks of the Group of Seven (G-7) nations could limit the GBP’s decline. The financial market expects the BoE to reduce interest rates once again by 25 basis points in the remainder of this year.
The British Pound FAQs
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).
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.
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.
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.
