GBP/USD strengthens above 1.3305 as investors await Fed board appointee
- GBP/USD gains ground to around 1.3305 in Wednesday’s Asian session.
- Trump said he will decide on the Fed governor’s replacement by the end of the week.
- BoE is expected to lower its base rate by 25 bps to 4.00% at its August meeting.
The GBP/USD pair trades on a positive note near 1.3305 during the Asian trading hours on Wednesday. The Greenback softens against the Pound Sterling (GBP) as traders await US President Donald Trump's pick for a vacancy on the Federal Reserve's (Fed) Board of Governors.
The US July jobs report showed weaker-than-expected job growth, increasing the likelihood of a Fed rate reduction in September. According to the CME FedWatch tool, rate futures are now pricing in nearly a 91% possibility of the Fed cutting rates at the September meeting, compared with 35% a week earlier. They also indicate 60 basis points (bps) of reductions by end-December and 130 bps in rate cuts by October 2026.
Traders will closely monitor the developments surrounding the potential Fed Chair. Trump said on Tuesday that he has narrowed the field of potential future Fed chairs to four candidates, a list that does not include US Treasury Secretary Scott Bessent. Additionally, Trump noted that he will name a replacement for Fed Governor Adriana Kugler by the end of the week.
On the GBP’s front, the Bank of England (BoE) interest rate decision will be in the spotlight on Thursday. The BoE is widely anticipated to cut its key interest rate to 4.0% from 4.25% at its August meeting to prevent the economy from sliding backwards amid rising unemployment and the hit to global trade from US tariffs. The BoE's Governor Bailey speech will be closely watched as it might offer some hints about the UK interest rate outlook. Any dovish remarks could undermine the Cable in the near term.
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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