- The GBP/USD wins traction around 1,3195 in the early hours of the European session on Tuesday.
- The gradual and careful approach of monetary policy by the BOE supports the pound.
- Employment reports from the United Kingdom and US IPC inflation will be at the center of attention later on Tuesday.
The GBP/USD pair rises to about 1,3195 during the first hours of the European session on Tuesday. The sterling pound (GBP) advances against the dollar due to positive developments around the commercial agreement between the US and the United Kingdom last week. The United Kingdom employment and inflation reports of the US will be the points highlighted later on Tuesday.
The president of the USA, Donald Trump, said last week that he will continue to impose a new 10% tariff on imports from most British products, but will reduce the highest tariffs on the imports of British cars, steel and aluminum. These positive developments around the commercial agreement between the US and the United Kingdom drive to the GBP/USD.
In addition, a gradual and careful approach to relaxation of politics by the BOE contributes to the rise of the GBP. The Central Bank of the United Kingdom cut the interest rates in a percentage point in a decision divided last week and suggested that the growth risks raised by Trump’s global commercial war have not derailed their plan to relax policy only with caution. The BOE estimated that the United Kingdom’s economy will grow at a faster rate of 1%, compared to 0.75% projected at the February meeting.
The operators expect the publication of the US Consumer Price Index (CPI) for April, which will be published later on Tuesday. This report could offer more clues about whether the Federal Reserve (Fed) will resume the cycle of relaxation of monetary policy at the next meeting. In case of a hotter result than expected, this could boost the dollar against GBP in the short term.
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.
