British Pound weakens as US Dollar advances ahead of FOMC Meeting Minutes
- GBP/USD depreciates as rising oil prices fuel inflation concerns, boosting the US Dollar on Fed rate-hike expectations.
- BoE hawk Catherine Mann warned UK inflation could hit 4% around year-end, supporting prolonged high interest rates.
- High UK energy costs and persistent price pressures continue reinforcing market expectations for higher-for-longer Bank of England rates.
GBP/USD loses ground after registering modest gains in the previous day, trading around 1.3250 during Asian hours on Wednesday. The pair depreciates as the US Dollar (USD) gains ground, driven by rising oil prices that could revive inflation concerns and expectations for further Federal Reserve (Fed) rate hikes. Traders await the Federal Open Market Committee (FOMC) Meeting Minutes due later in the day.
However, the downside for the GBP/USD pair could be restrained as easing expectations for Federal Reserve (Fed) rate hikes following last week's softer US jobs data weigh on the Greenback. According to the CME FedWatch tool, interest-rate swaps show traders pricing in an almost 20% probability that the Fed will lift benchmark borrowing costs at its October gathering.
G10 gains against the Dollar remain uneven into the US session
Strategists at Scotiabank observe that "G10 currencies continue to trade in mixed fashion vs. the USD," with "a majority showing gains into Tuesday’s NA open." This uneven performance underscores the still-fragmented nature of Dollar trading, even as more pairs edge higher into the North American session.
Meanwhile, the British Pound (GBP) could find support as elevated energy costs and persistent inflation concerns reinforce expectations for Bank of England (BoE) interest rates to remain higher for longer.
BoE policymaker Catherine Mann highlighted these risks on Tuesday, warning that inflation above the central bank’s 2% target appears embedded in the economy and could reach 4% around the turn of the year during typical wage negotiations. Mann, who has consistently voted for a 25-basis-point rate hike to 4% since July, noted that these wage dynamics could add further price pressures.
Technical Analysis:
In the daily chart, GBP/USD trades at 1.3250, keeping a bearish near-term tone as spot remains capped beneath both the nine- and 50-day Exponential Moving Averages (EMAs). The pair continues to grind lower away from these overhead averages, while the 14-day Relative Strength Index (RSI) at 39.3 stays below the midline, hinting at persistent downside pressure rather than an imminent bullish reversal.
On the topside, immediate resistance is seen at the nine-day EMA at 1.3259, which guards the path toward the denser technical barrier provided by the 50-day EMA at 1.3387. As long as GBP/USD trades under this EMA cluster, rallies are likely to be sold, and the broader bias would remain bearish unless a daily close above 1.3387 starts to weaken the prevailing downtrend structure.
(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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