GBP/USD bounces from lows as US Dollar retreats
- The Pound Sterling recovererd around 0.75% on Monday as broad Dollar weakness offers a brief reprieve from recent selling pressure.
- The BoE is expected to hold rates at 3.75% at Thursday's meeting with a less-dovish tilt than the prior meeting.
- UK January employment data, due Thursday, is forecast to show ILO unemployment steady at 5.2%, with bonused earnings growth expected to ease.
GBP/USD gained almost 0.75% on Monday, bouncing from Friday's low close to 1.3220 to settle on the high side of 1.3300. The session's recovery looks corrective rather than the start of a new trend; the pair remains in a clear downtrend from the late-January high near 1.3870, and Monday's candle has yet to challenge the cluster of resistance around the 200-day Exponential Moving Average (EMA). Price has closed below all of its key moving averages for several sessions, and the burden of proof sits with buyers.
The Bank of England (BoE) is expected to hold rates at 3.75% on Thursday, but the composition of the Monetary Policy Committee (MPC) vote is in focus. Consensus points to a 2-0-7 split in favor of cut, hike, and unchanged, respectively, an overall less-dovish lean than the 4-0-5 split at the prior meeting, suggesting the committee is moving toward a more cautious easing pace. UK employment data, also due Thursday, is forecast to show the International Labour Organization (ILO) unemployment rate steady at 5.2%, with average earnings including bonus expected to ease to 3.9% year-on-year (YoY) from 4.2%.
On the US Dollar (USD) side, broad Greenback softness driven by easing Strait of Hormuz tensions provided the main lift on Monday. March NY Empire State Manufacturing came in at -0.2, well below the 3.2 consensus, reinforcing the softer tone. The Fed's rate decision on Wednesday, expected to hold at 3.75%, and the accompanying SEP update will be the week's dominant USD event and a key driver for the pair's near-term direction.
GBP/USD daily chart
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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