US inflation figures are next for a Pound back above 1.33
- GBP/USD breaks a three-session losing run and climbs back above 1.3300.
- Chancellor Healey's first Budget leaves less headroom, and gilt yields ease.
- September's US core PCE inflation is due Thursday, forecast at 3.1%.
GBP/USD's first gain in four sessions came from a weaker Dollar after the Fed's hold, and Chancellor Healey's first Budget had little to do with it. The pair's session low, just above 1.3250 and its lowest since mid-October, came well before the Budget speech. It barely moved while the speech ran and is trading just above 1.3300 after the Fed.
The Office for Budget Responsibility (OBR) puts Chancellor Healey's headroom at £15 billion for 2029-30, down from £24 billion in March, even with new taxes on banks and gambling. The 10-year gilt yield eased anyway, on a Budget with about £14 billion of extra debt interest this year in the OBR's forecast, nearly as much as the headroom. The Pound is down against the Euro on the day, so GBP/USD's gain is the Dollar's fall.
The Fed left its rate at 3.75%-4.00%, and Fed Chair Warsh said tighter credit since September, including dearer borrowing for the technology build-out, shows the Fed's policy is working. The Dollar Index made its low of the session while he took questions, and GBP/USD made its high in the same stretch.
On the calendar
September's core Personal Consumption Expenditures Price Index (PCE) comes out at 12:30 GMT on Thursday, forecast at 3.1% for the year after 3%. The headline rate is forecast at 3.6% after 3.4%, and the third-quarter Employment Cost Index follows on Friday at 12:30 GMT, forecast at 0.8% after 0.9%. They're the first US price and wage figures since the hold, and they bear on whether the Fed hikes in December.
Nothing from the UK is on the calendar before the weekend, so the Bank of England (BoE) decision on November 5 is the next event on the Pound's side. Almost every research house expects it to raise the UK's Bank Rate to 4.00% from 3.75%.
On the charts
GBP/USD climbed from just under 1.3150 on October 14 to just above 1.3400 on October 22, and the slide into Wednesday's low gave back about half of that climb. The pair is below the 50-day Exponential Moving Average (EMA) near 1.3350 and the 200-day EMA just under 1.3400, which it traded around from October 20 to 22. Daily momentum is still overbought after the three down sessions.
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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