British Pound drifts higher to near 1.3550 on UK fiscal discipline pledges
- GBP/USD gathers strength to around 1.3545 in Tuesday’s early Asian session.
- UK Chancellor John Healey unveils UK investment and regulation reforms.
- Traders raise their bets on a US interest rate hike in September following robust US jobs data.
The GBP/USD pair gains ground to near 1.3545 during the Asian trading hours on Tuesday. The British Pound (GBP) edges higher against the US Dollar (USD) after UK Chancellor John Healey unveiled a series of measures designed to encourage economic growth and draw more private investment into the UK.
Healey promised to cut regulatory barriers to UK investment and create new testing freedoms for emerging technologies, per the BBC. Additionally, the UK Chancellor on Monday announced plans to give city regions greater powers to attract private investment as part of Prime Minister Andy Burnham's plan to devolve power away from central government.
Healey also stressed his commitment to fiscal discipline and to curbing rising costs for business and the public, including a 25% reduction in regulatory costs by the next election due in 2029. The Cable receives some support following Healey's first major speech ahead of the upcoming October budget.
A stronger-than-expected US jobs report in August has pushed Federal Reserve (Fed) rate-hike bets to above 60%. The US Nonfarm Payrolls (NFP) added 162,000 jobs in August, beating expectations, while the Unemployment Rate held steady during the same period, the US Bureau of Labor Statistics (BLS) showed on Friday. Attention will shift to the US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation readings later this week.
UK data seen as unlikely to shift BoE despite fragile growth backdrop
Strategists at Brown Brothers Harriman note that the upcoming UK July GDP release, due on Friday, is “unlikely to shift the dial on Bank of England (BoE) rate expectations.” They point out that “real GDP is expected at 0.0% m/m vs. +0.3% in June, as July’s decline in retail sales volumes offset an improvement in the compositive PMI,” while “the BoE’s baseline Q3 forecast is 0.1% q/q.” In their view, the broader macro backdrop argues against the degree of tightening currently priced, as “the UK’s negative output gap, a policy rate above the mid-point of the BoE’s 2% to 4% neutral range estimate and the prospect of tighter fiscal policy all argue for a less aggressive hiking cycle.”
Technical Analysis: GBP/USD maintains a positive tone in the near term
In the daily chart, GBP/USD holds above the lower Bollinger Band and the 100-day moving average (MA), keeping the short-term bias mildly bullish despite price slipping just under the 20-day Bollinger simple moving average (SMA). The Relative Strength Index (RSI) around 53 sits close to neutral territory, suggesting a consolidative tone rather than a stretched move as spot hovers between underlying trend support and the upper side of the recent volatility envelope.
On the downside, initial support emerges at the lower Bollinger Band near 1.3455, with the 100-day MA at 1.3445 reinforcing this demand area; a daily close below this cluster would weaken the constructive bias and open the door to a deeper pullback. On the topside, immediate resistance is seen at the 20-day Bollinger SMA around 1.3560, with the upper Bollinger Band near 1.3660 acting as the next hurdle; a break above these caps would suggest renewed upside momentum towards the recent highs.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) 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, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release 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 over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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