British Pound turns higher as Warsh stresses price stabiity
- GBP/USD gains 0.17% to 1.3327 during Warsh's press conference.
- Fed holds rates unchanged as Cook and Hammack favor tightening.
- Warsh emphasizes price stability and economic strength despite persistent inflation.
The Pound Sterling turns positive on the day as Fed Chair Kevin Warsh's press conference is underway, following the Fed's decision to hold rates unchanged amid a split vote. The GBP/USD trades near 1.3327, gaining 0.17%.
GBP/USD rebounds as Fed Chair Warsh emphasizes economic resilience following a divided rate decision.
At his press conference, Fed Chair Kevin Warsh said that the FOMC will deliver price stability, that the economy is strong and that the Federal Reserve will hold eight meetings next year, but in one they will not have a vote. For 2028, he expects six policy-setting meetings.
The Fed acknowledged that economic activity is expanding, that domestic spending has been resilient, that productivity growth is strong and that capital investment is robust. Regarding its mandate on employment, the Fed noted that “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
Regarding inflation, the central bank said it remains elevated but decided to skip rate hikes to gather more information and better assess an appropriate policy stance.
The two dissenters in the meeting were Governor Lisa Cook and Cleveland Fed President Beth Hammack, who supported a 25-basis-point rate hike.
GBP/USD 5-minute chart
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.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
