GBP/USD softens to near 1.3450 ahead of UK/US PMI releases
- GBP/USD loses momentum to around 1.3450 in Thursday’s Asian session.
- Investors await the hints on whether the Fed will cut rates in September.
- UK inflation rises to its highest since early 2024 at 3.8%.
The GBP/USD pair drifts lower to around 1.3450 during the Asian trading hours on Thursday, pressured by a modest rebound in the US Dollar (USD). Traders await the preliminary reading of S&P Global Purchasing Managers Index (PMI) reports for August from the United Kingdom (UK) and the United States (US), which are due later on Thursday. On Friday, all eyes will be on the Fed’s annual Jackson Hole symposium.
The Greenback strengthens against the Pound Sterling (GBP) on diminishing odds of a Fed rate cut in the September meeting after a jump in US wholesale prices last month. Markets expect the Fed to deliver rate cuts at the next policy meeting, with chance estimates nearly 80% and priced in a total of 52 basis points (bps) of easing over the rest of the year, according to the CME FedWatch tool.
Investors braced for potentially market-moving news from the Fed's annual symposium in Jackson Hole on Friday. If Fed Chair Jerome Powell delivers hawkish remarks or guides a “wait and see” approach, this could boost the USD and act as a headwind for the major pair.
The UK headline Consumer Price Index (CPI) rose 3.8% YoY in July, compared to an increase of 3.6% in June, the Office for National Statistics showed on Wednesday. This reading came in above the market consensus of 3.7%. Meanwhile, the Core CPI, which excludes the volatile prices of food and energy, climbed 3.8% YoY in July versus 3.7% prior, hotter than the 3.7% expected. The monthly UK CPI inflation eased to 0.1% in July from 0.3% in June. Markets projected a decline of 0.1%.
Investors expected a longer wait before the next Bank of England (BoE) rate cut, which might provide some support to the Cable. A quarter-point cut is not fully priced in until March 2026. Earlier this month, the next rate reduction was viewed as highly likely before the end of 2025, per Reuters.
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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