GBP/USD weakens to near 1.3550 on modest US Dollar strength
- GBP/USD softens to around 1.3555 in Monday’s early Asian session.
- A cautious mood ahead of the US-Ukraine meeting underpins the US Dollar.
- UK economy grows by better-than-expected 0.3% QoQ in the second quarter.
The GBP/USD pair loses ground to near 1.3555 during the early Asian session on Monday, pressured by a firmer US Dollar (USD). Markets turn cautious ahead of a meeting between US President Donald Trump and Ukrainian President Volodymyr Zelenskiy later on Monday. The UK July Consumer Price Index (CPI) inflation report will be released on Tuesday.
The Greenback strengthens as caution prevails before Trump’s talks with Zelenskiy. Traders await the Trump-Zelenskiy meeting in Washington on Monday, as it might offer some hints about a ceasefire deal or new sanctions on Russia or buyers of its crude. Any signs of persistent geopolitical tensions might boost the safe-haven demand and create a headwind for the major pair in the near term.
Nonetheless, the upbeat UK Gross Domestic Product (GDP) report for the second quarter (Q2) could provide some support to the Cable. The UK economy slowed less than expected in Q2 despite the shock of US trade tariffs and a weaker jobs market, rising 0.3% QoQ versus a 0.7% growth in Q1. This figure came in stronger than the expectation of a 0.1% expansion in the reported period.
The attention will shift to the UK CPI inflation data on Tuesday for a fresh impetus. The core CPI is expected to show an increase of 3.7% YoY in July. If the data shows a hotter-than-expected outcome, this could reduce market expectations for the Bank of England (BoE) to cut rates in September, which might lift the GBP against the USD. Markets are now fully pricing another reduction only in February 2026, according to LSEG data.
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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