- GBP/USD trades with mild losses around 1.3275 in Friday’s Asian session.
- Easing fears of trade tensions supports the US Dollar.
- Traders raise bets of further BoE rate cuts in its May policy meeting.
The GBP/USD pair drifts lower to near 1.3275 during the Asian trading hours on Friday. The positive developments surrounding US-China trade talks provide some support to the US Dollar (USD). Investors will closely monitor the US April employment report later on Friday, including the Nonfarm Payrolls (NFP), the Unemployment Rate and Average Hourly Earnings.
Early Friday, China said it is assessing the possibility of trade talks with the United States, the first sign since US President Donald Trump raised tariffs in April. The easing of a trade war between the world’s two largest economies and the hope that negotiations could begin between the two sides lift the Greenback and create a headwind for the major pair.
Data released by the US Department of Labor on Thursday showed that US weekly Initial Jobless Claims for the week ended April 26 rose by 241,000, compared to the previous week of 223K (revised from 222K). This figure came in above the market consensus of 224K. Additionally, the ISM Manufacturing Purchasing Managers’ Index (PMI) dropped to 48.7 in April versus 49.0 prior, stronger than the 48.0 expected.
The Bank of England (BoE) Governor Andrew Bailey warned that the UK central bank should consider global trade war risk in the fallout of Trump’s tariffs. Concerns over trade policy uncertainty have prompted traders to raise their bets supporting the BoE to cut interest rates in the policy meeting at its May meeting. Financial markets have priced in nearly a 96% chance that the BoE will cut its rate by a quarter-point to 4.25% when it announces its next move on May 8, according to a Reuters poll.
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.