Pound Sterling trades mixed as focus shifts to BoE policy announcement
- The Pound Sterling trades cautiously ahead of the BoE policy announcement on Thursday.
- Investors expect the BoE to leave interest rates unchanged .
- The US Dollar retraces after a two-day rally due to the partial US government shutdown.
The Pound Sterling (GBP) shows a mixed performance against its major currency peers on Tuesday as traders shift their focus to the Bank of England’s (BoE) monetary policy announcement on Thursday.
The BoE is expected to leave interest rates unchanged at 3.75%, with a 7-2 majority, suggesting that the decision will be almost unanimous this time after very divided outcomes in the previous two meetings.
Market participants predict that the BoE will maintain the status quo after the United Kingdom (UK) central bank delivered a 25 basis points (bps) reduction in interest rates in December and reiterated that the monetary policy will remain on a “gradual downward path”.
In addition to the BoE interest rate decision itself, investors will focus on Governor Andrew Bailey’s press conference to get fresh cues over the job market and inflation outlook. In the last meeting, BoE officials expressed confidence that “inflation will come closer to 2%” in the second quarter of 2026.
Daily Digest Market Movers: Pound Sterling gains against US Dollar, drops vs. Euro
- The Pound Sterling trades 0.25% higher to near 1.3710 against the US Dollar (USD), and slightly lower to near 0.8630 against the Euro (EUR) during the European trading session on Tuesday. The GBP/USD pair gains marginally higher as the US Dollar (USD) ticks lower due to uncertainty amid the partial US federal government shutdown.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls 0.25% to near 97.35. The DXY corrects from a weekly high of 97.73 posted on Monday.
- The US Dollar outperformed in the last two trading days, following Kevin Warsh’s nomination as the Federal Reserve’s (Fed) new chairman and fresh survey data suggesting that the United States (US) manufacturing sector returned into growth.
- On Monday, the ISM reported that the Manufacturing Purchasing Managers’ Index (PMI) jumped to 52.6 in January from 47.9 in December. A figure above 50 indicates expansion in business activity.
- Going forward, investors will focus on the US ADP Employment Change and the ISM Services PMI data for January. Investors will pay close attention to the US private-sector employment data to get fresh cues on the labor demand. The delay in the US Nonfarm Payrolls (NFP) data release for an unknown period amid the government shutdown also increases the significance of the private job data.
- Meanwhile, the EUR/GBP pair trades cautiously ahead of monetary policy announcements by both the BoE and the European Central Bank (ECB) on Thursday. The ECB is expected to leave interest rates unchanged as price pressures have broadly remained close to the Eurozone central bank’s target.
- Ahead of the ECB policy announcement, investors will focus on the Eurozone preliminary Harmonized Index of Consumer Prices (HICP) data for January, which will be released on Wednesday.
Technical Analysis: GBP/USD stays firmly above 20-day EMA
GBP/USD trades higher at around 1.3710 at the time of writing. Above the rising 20-day Exponential Moving Average (EMA), the pair maintains a bullish near-term structure. The 20-day EMA has curled higher in recent sessions, confirming renewed trend strength.
The 14-day Relative Strength Index (RSI) finds cushion near 60.00 after cooling down from overbought levels around 80.00, backing scope for a fresh rally.
A daily close under the average could slow the advance and pivot the pair into consolidation, whereas sustained strength above it would keep buyers in control.
(The technical analysis of this story was written with the help of an AI tool.)
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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