The British Pound rallies on a UK growth upgrade and gives more than half back
- GBP/USD pokes above 1.3300 on a UK growth upgrade and closes back under it.
- UK second-quarter growth revised up to 0.5% from 0.4%.
- A November 5 BoE hike priced at better than 80%.
Markets put a better than 80% chance on the Bank of England (BoE) raising the UK's Bank Rate from 3.75% on November 5, and GBP/USD still couldn't close above 1.3300. The pair broke through 1.3300 after second-quarter Gross Domestic Product (GDP) was revised up, then gave back more than half of the rally before the close. September was the Pound's worst month against the Dollar in nearly a year. The BoE voted six to three to hold on September 17, and five weeks before it meets again the market has all but voted to hike.
A 0.1-point upgrade against a 5.30% Treasury yield
Growth in the second quarter was revised to 0.5% from 0.4%, and to 1.4% YoY from 1.2%. The upgrade came mostly from exports, which rose 2.8%, while household spending grew only 0.3%. BoE Governor Bailey and Deputy Governor Ramsden have both said persistently high energy prices would make it hard to leave rates where they are.
What moves GBP/USD is the gap between UK and US rates. The Bank Rate is 3.75% against the Fed's 3.75-4.00% range, and US 10-year borrowing costs climbed to their highest since 2007 on Wednesday. A British economy that grew a little faster in the spring is good news for Britain and does very little for a currency pair priced off the gap to US yields.
One Bank of England speech against five from the Fed
External member Mann speaks on Thursday at 12:00 GMT. The Institute for Supply Management (ISM) factory survey follows at 14:00 GMT with a forecast of 55, and five Fed officials speak later the same day. Friday brings Nonfarm Payrolls, where the forecast is 90K against August's 162K.
A strong US jobs count would widen the rate gap GBP/USD has been falling on since early September, whatever Mann says. She voted to hike in September, so the likeliest outcome of her speech is a hike voter explaining that she still wants a hike.
GBP/USD levels into Friday's payrolls
Resistance: 1.3300 turned Wednesday's rally back just above it and has capped every close since the September 23 drop. 1.3350, where that drop started, is next.
Support: 1.3200, the September 29 low and the pair's lowest in about three months, is the first floor. 1.3150 is below it.
Bias: Short while 1.3300 holds on a closing basis, with 1.3200 as the first objective and 1.3150 as the second. On the daily chart, the Stochastic Relative Strength Index (Stoch RSI) has flattened near 9 at the bottom of its range, which leaves room for a bounce without changing the view. A daily close above 1.3350 flips it.
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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