GBP/USD breaks below 1.3400 due to stronger US Dollar, BoE rate cut expectations
- GBP/USD depreciates as the US Dollar strengthens ahead of the upcoming US Personal Consumption Expenditures Price Index release.
- The Greenback appreciates as yields on 2-year and 10-year US Treasury bonds snap a four-day losing streak.
- The British Pound faces pressure amid rising expectations that the BoE will cut interest rates at its May policy meeting.
GBP/USD extends its decline for a second straight session, hovering near 1.3390 during Wednesday’s Asian trading. The pair is under pressure as the US Dollar strengthens on renewed optimism surrounding US-China trade developments. Traders now turn their attention to the upcoming release of the US Personal Consumption Expenditures (PCE) Price Index for March, a key inflation gauge for the Federal Reserve.
The US Dollar Index (DXY), which measures the USD against six major currencies, remains comfortably above the 99.00 mark, meanwhile a rebound in US Treasury yields. Both the 2-year and 10-year yields on US bond coupons snapped a four-day losing streak, trading around 3.66% and 4.17%, respectively, at the time of writing.
On the data front, Tuesday’s US JOLTS report revealed a drop in job openings to 7.19 million in March—its lowest level since September 2024—suggesting cooling labor demand. The figure fell short of expectations and highlighted rising economic uncertainty.
Adding to the GBP/USD pair downside, the British Pound (GBP) is weighed by growing expectations that the Bank of England (BoE) will cut rates at its May meeting. Softer inflation expectations in the United Kingdo (UK) and rising global economic headwinds have fueled dovish bets.
BoE policymaker Megan Greene recently commented that tariffs proposed by US President Donald Trump might lead to lower inflation in the UK, though significant uncertainties remain regarding the broader economic impact and recent tax hikes for employers.
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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