Pound Sterling gains against its peers amid upbeat market mood
- The Pound Sterling rises against its main currency peers as the market sentiment remains favorable for riskier assets.
- The UK economy is expected to have stagnated in July.
- Investors await key US PPI and CPI data for August.
The Pound Sterling (GBP) trades higher against its major currency peers, except antipodeans, on Wednesday. The British currency demonstrates strength as the market sentiment remains upbeat amid firm expectations that the Federal Reserve (Fed) will cut interest rates next week.
On the domestic data front, investors await the UK Gross Domestic Product (GDP) and the factory data for July scheduled for Friday. Monthly GDP growth in the United Kingdom (UK) economy is expected to have stagnated after rising by 0.4% in June. Month-on-month Manufacturing and Industrial Production data are also expected to have remained flat.
Signs of cooling UK GDP growth would prompt market expectations for more interest rate cuts by the Bank of England (BoE) in the remainder of the year. Meanwhile, traders expect the BoE to hold interest rates steady at 4% in the monetary policy meeting next week.
Meanwhile, the US Dollar trades calmly as investors digest signs of weakness in the US job market shown by the Nonfarm Payrolls (NFP) Benchmark Revision report released on Tuesday. The report for 12 months ending March 2025 showed that the economy created 911K fewer jobs than had been anticipated earlier.
Daily digest market movers: Pound Sterling wobbles against US Dollar
- The Pound Sterling trades in a tight range around 1.3530 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair wobbles as the US Dollar trades calmly ahead of the United States (US) Producer Price Index (PPI) data for August, which will be published at 12:30 GMT.
- Investors will closely monitor the US producer inflation data to gauge the impact of reciprocal and sectoral tariffs imposed by US President Donald Trump. Economists expect the headline PPI to have grown steadily at an annualized pace of 3.3%. Meanwhile, the core PPI – which excludes volatile food and energy items – is estimated to have risen moderately by 3.5%, compared to 3.7% in July. On a monthly basis, both headline and core PPI are expected to have grown at a slower pace of 0.3%.
- Lately, Federal Open Market Committee (FOMC) members have commented that the impact of tariffs on inflation won’t be persistent.
- For more cues on inflation, investors will focus on the US Consumer Price Index (CPI) data for August, which is scheduled for Thursday. The consumer inflation report is expected to show that price pressures grew at a slightly faster pace.
- The US PPI and CPI data will provide cues about the pace at which the Federal Reserve (Fed) will cut interest rates in the policy meeting next week, as traders are already confident tha the central bank will initiate the monetary-easing campaign on September 17.
- According to the CME FedWatch tool, traders see an 8.4% chance that the Fed will cut interest rates by 50 basis points (bps) to 3.75%-4.00%, while the rest point a standard 25-bps interest rate reduction.
Technical Analysis: Pound Sterling trades sideways around 1.3530
The Pound Sterling consolidates around 1.3530 against the US Dollar on Wednesday. The GBP/USD pair trades inside an Ascending Triangle chart pattern, which indicates indecisiveness among investors. The horizontal resistance of the above-mentioned chart pattern is plotted from the July 23 high around 1.3585, while the upward-sloping border is placed from the August 1 low near 1.3140.
The near-term trend of the Cable remains sideways as it trades close to the 20-day Exponential Moving Average (EMA), which is around 1.3487.
The 14-day Relative Strength Index (RSI) on the daily chart oscillates inside the 40.00-60.00 range, indicating a sideways trend.
Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the July 1 high near 1.3800 will act as a key barrier.
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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