British Pound drifts lower below 1.3250 on steady BoE rate path, traders await US jobs data
- GBP/USD softens to near 1.3240 in Tuesday’s Asian session.
- The US ADP employment data and the US NFP report will be closely watched later this week.
- Economists expect the BoE to keep its benchmark interest rate steady at 3.75% through the end of the year.
The GBP/USD pair loses traction to around 1.3240 during the Asian trading hours on Tuesday. A potential rate hike from the US Federal Reserve (Fed) provides some support to the US Dollar (USD) against the British Pound (GBP). The US ADP employment data and the US Nonfarm Payrolls (NFP) data will take center stage later this week.
The US central bank decided to leave the interest rates unchanged at its June policy meeting, but policymakers expect a rate hike later this year amid growing concerns about inflation lodged above the US central bank’s 2% target. Traders are now pricing in nearly a 60% probability of an interest rate hike from the Fed by September, according to the CME FedWatch tool.
Traders will take more clues from the US June employment data, which could offer some hints about the Fed’s monetary policy stance. Economists forecast an increase of 110,000 jobs in June and the Unemployment Rate holding steady at 4.3% during the same period.
The candidate for the leadership of the Labour Party and the future Prime Minister of the United Kingdom, Andy Burnham, said on Monday that if elected he would create a government office in Manchester. The office would be named No. 10 North and would become the “nerve center” of a reformed Britain.
Keir Starmer last week faced political pressure and announced he would step down as leader of the ruling Labour Party. The schedule to pick a successor could see Burnham installed as Prime Minister as soon as July 17, if no other challenger emerges.
Economists expect the Bank of England (BoE) to keep its benchmark interest rate steady at 3.75% through the end of the year, following previous pauses, accoring to Reuters.
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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