- GBP/USD gains ground as the US Dollar remains under pressure amid persistent trade-related uncertainties.
- Washington may lean toward a weaker dollar to advance its trade objectives.
- The latest UK labor report suggested that employers scaled back hiring ahead of higher social security contributions effective from April.
GBP/USD is rebounding from recent losses, trading near 1.3280 during the Asian session on Thursday. The pair is supported by a softer US Dollar (USD), as investors weigh ongoing trade-related uncertainties despite a slight easing in tensions. Market focus now shifts to the release of US Retail Sales and Producer Price Index (PPI) data later in the day.
Speculation is building that Washington may prefer a weaker dollar to bolster its trade position. The Trump administration has argued that a strong Greenback, relative to weaker regional currencies, disadvantages US exporters.
However, downside pressure on the USD may be limited. Improved global trade sentiment has eased recession concerns, reducing expectations for aggressive Federal Reserve (Fed) rate cuts. According to LSEG data, markets now price in a 74% chance of a 25-basis-point cut in September, down from earlier forecasts for a July cut.
Meanwhile, the British Pound (GBP) holds steady as traders reassess the Bank of England’s (BoE) policy outlook following Tuesday’s labor market data for the three months ending March. The report showed slower job growth, a higher unemployment rate, and easing wage gains, suggesting that employers scaled back hiring ahead of higher social security contributions effective from April.
Nonetheless, moderate wage growth may offer some relief to BoE policymakers. Wage trends remain a key indicator for inflation in the services sector, which continues to drive underlying UK price pressures.
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.