GBP/USD loses ground below 1.3150 ahead of UK CPI data
- GBP/USD depreciates ahead of key economic data from the United Kingdom.
- The US Dollar receives support from the diminishing likelihood of a Fed rate cut in December.
- President Trump said he “would love” to remove Fed Chair Jerome Powell immediately.
GBP/USD remains subdued for the fourth consecutive session, trading around 1.3130 during the Asian hours on Wednesday. Traders await the United Kingdom (UK) Consumer Price Index (CPI), PPI Core Output, and Retail Price Index data for October due later in the day.
Any moderation in UK price pressures, combined with a softening labor market and slowing GDP growth, would reinforce expectations of a December rate cut by the Bank of England (BoE), putting additional pressure on the Pound Sterling (GBP).
The GBP/USD pair also depreciates as the US Dollar (USD) maintains its position due to the diminishing likelihood of a US Federal Reserve (Fed) rate cut in December. Traders await the highly anticipated September Nonfarm Payrolls data due on Thursday.
The CME FedWatch Tool indicated that markets are now pricing in a 49% odds of the Fed delivering a 25-basis-point rate cut at its December meeting, down from 67% probability that markets priced a week ago.
US Initial Jobless Claims showed on Tuesday that 232,000 people filed first-time claims for state unemployment insurance in the week ended October 18. Meanwhile, an Automatic Data Processing (ADP) report showed that employers cut 2,500 jobs a week on average during the four weeks ending November 1.
Richmond Fed President Thomas Barkin noted on Tuesday, saying the labor market appears more balanced, with firms reporting improved worker availability and recent layoffs signalling the need for caution. Barkin said inflation doesn’t seem to be rising but it’s also unclear whether it will return to the Fed’s 2% target. He emphasized that, without more decisive data, it remains difficult to reach a broad policy consensus.
US President Donald Trump said in an Oval Office interview on Tuesday that he “would love” to remove Fed Chair Jerome Powell immediately. Trump added that he already has a preferred candidate in mind for the position, noting that there are “some surprising names” under consideration, though the administration may ultimately choose a more traditional option.
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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