Pound climbs to a five-week high on UK jobs and BoE talk

GBP/USD climbs to its highest since mid-September, just above 1.3400.
Unemployment falls to 4.7%, and MPC member Greene warns pay isn't cooling.
UK CPI Wednesday is forecast at 3.4%, and BoE Governor Bailey speaks Thursday.

Joshua Gibson FXStreet

A rise in the UK's Bank Rate on November 5 got more backing from Tuesday's jobs data, and GBP/USD climbed to its highest since mid-September. It rose from about 1.3300 to just above 1.3400, and it ended just under that level.

Unemployment fell to 4.7% in the three months to August against a 4.9% forecast, and pay growth excluding bonuses rose to 3.7%, a tenth above forecast. The same release counted 30.3K more people claiming jobless benefits, more than half again the 19.4K forecast, and traders went with the unemployment rate.

Bank of England (BoE) Monetary Policy Committee (MPC) member Greene, who voted for a hike in September, said pay growth has stopped slowing. She said the BoE should act early against higher prices feeding into pay. Traders price about a 95% chance that the Bank Rate rises from 3.75% on November 5, which would put it level with the top of the Fed's 3.75%-4.00% range.

On the calendar

UK Consumer Price Index (CPI) figures at 06:00 GMT on Wednesday are forecast at 3.4% after 3.1%, with core at 2.7% after 2.6%. BoE Governor Bailey speaks at 10:50 GMT on Thursday, and Friday's retail sales at 06:00 GMT are forecast to fall 0.1% after a 0.5% rise. All three feed the November 5 decision.

On the US side, S&P Global's business surveys are due on Friday at 13:45 GMT. University of Michigan sentiment follows at 14:00 GMT, forecast unchanged at 46.3, and it's the final US release before the Fed decides on October 28.

On the charts

The climb took GBP/USD back to its 200-day Exponential Moving Average (EMA) for the first time in more than a month, with the 50-day EMA near 1.3350 below it. Since the October 14 low just under 1.3150, GBP/USD has made up about half of what it lost from the August high just under 1.3700. Daily momentum is overbought, which it last was in late August.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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