GBP/USD maintains position above 1.3400 ahead of Fed Powell’s speech
- GBP/USD steadies as traders adopt caution ahead of Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium.
- The preliminary S&P Global US Composite PMI inched higher to 55.4 in August, from 55.1 prior.
- The UK GfK Consumer Confidence improved to -17 in August from -19 in July.
GBP/USD moves little after four days of losses, trading around 1.3410 during the Asian hours on Friday. The pair faced challenges as the US Dollar (USD) gained ground following the key economic data from the United States (US) released on Thursday. Traders await Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium in Wyoming to gain clues on the September policy outlook.
The preliminary S&P Global US Composite PMI picked up pace in August, with the index at 55.4 versus 55.1 prior. Meanwhile, the US Manufacturing PMI rose to 53.3 from 49.8 prior, surpassing the market consensus of 49.5. Services PMI eased to 55.4 from 55.7 previous reading, but was stronger than the 54.2 expected. Moreover, US Initial Jobless Claims rose to 235K for the previous week, an eight-week high and above the consensus estimate of 225K, suggesting some softening in labor market conditions.
Strong PMI data paired with rising jobless claims highlights the Federal Reserve’s challenge of weighing persistent inflation pressures against evidence of a softening labor market. According to the CME FedWatch tool, Fed funds futures traders are now pricing in a 74% chance of a rate reduction in September, down from 82% on Wednesday.
Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee said late Thursday that September’s Fed meeting remains open for action. Goolsbee further stated that the Federal Reserve has been receiving mixed signals on the economy. Boston Fed President Susan Collins signaled openness to a rate cut as soon as September, citing tariff headwinds and potential labor market softness, even as near-term inflation risks persist.
The GfK Consumer Confidence in the United Kingdom (UK) rose to -17 in August from -19 in July, marking a one-year high amid support from the Bank of England’s (BoE) rate cut. Yet, sentiment remains fragile as households contend with sticky inflation, higher unemployment risks, and looming tax hikes.
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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