GBP/USD extends bullish rebound, continuation faces fresh technical challenge
- GBP/USD gained ground for a second day, climbing into the 1.3450 region.
- UK data mixed-to-positive, but US data might as well not exist.
- Fed rate cut expectations dominate market flows.
GBP/USD stepped into a second straight winning session on Thursday, around three-tenths of one percent and bringing Cable’s two-day recovery to a little over one percent, bottom-to-top. UK data came in more or less above expectations, bolstering the Pound Sterling (GBP) as it extends a technical rebound from the 200-day Exponential Moving Average (EMA) near 1.3270.
Cable is now facing a fresh technical ceiling near the 50-day EMA at 1.3450, but momentum remains in favor of GBP bulls as US data remains a limited affair.
Market-driving data evaporates, headline chasing in its place
There is little of note on both sides of Friday’s data docket, with the UK data pool now empty and the US side dark amid the ongoing government shutdown, which has caused the release of official datapoints to dwindle down to functionally nothing.
However, the silver lining for markets is that the Federal Reserve (Fed), lacking a consistent flow of inflation-sensitive data, has little else to do but hold steady on its current pace of interest rate cuts. Rate markets have fully priced in two more rate cuts before the end of the calendar year, with another rate cut expected next March.
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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