British Pound consolidates above 1.3500 vs USD ahead of this week's UK data, Fed, BoE

GBP/USD kicks off the new week on a subdued note as traders await Fed/BoE decisions.
Traders will also confront the release of the UK jobs data and the UK CPI report this week.
Rising Fed rate hike bets and Middle East tensions underpin the USD, capping spot prices.

Haresh Menghani FXStreet

The GBP/USD pair struggles to capitalize on Friday's bounce from the vicinity of the monthly swing low and consolidates above the 1.3500 psychological mark at the start of a new week. Traders seem hesitant to place aggressive directional bets and opt to move to the sidelines ahead of the key central bank event risks.

The US Federal Reserve (Fed) and the Bank of England (BoE) are scheduled to announce their monetary policy decisions on Wednesday and Thursday, respectively. The US inflation figures, released last week, reaffirmed market bets that the US central bank could raise interest rates by 25 basis points (bps). This, along with a further escalation of tensions in the Middle East, is seen as acting as a tailwind for the safe-haven US Dollar (USD) and keeping a lid on the GBP/USD pair.

In the latest developments, Yemen’s Iran-backed Houthi fighters said that they used drones and missiles to attack a military base in southern Saudi Arabia. Moreover, an Iranian cargo vessel was struck early Sunday in the Strait of Hormuz, while a planned regional meeting between Gulf states and Iran regarding the Strait of Hormuz has been postponed. This keeps the geopolitical risk premium in play, which turns out to be another factor underpinning the safe-haven Greenback.

The British Pound (GBP), on the other hand, draws support from Friday's better-than-expected UK GDP report, showing that the economy expanded 0.4% in July, compared to consensus estimates for a flat reading. Traders now look to the UK jobs report on Tuesday and the UK CPI report on Wednesday for short-term impetus. However, expectations that the BoE will leave rates unchanged at 3.75% hold back GBP bulls from placing fresh bets and cap the upside for the GBP/USD pair.

GBP/USD 4-hour chart

Technical Analysis

The GBP/USD pair holds just under the 200-period Simple Moving Average (SMA) at 1.3522 and the 38.2% Fibonacci retracement at 1.3516. This keeps the near-term tone mildly bearish and suggests that upside attempts are currently capped unless buyers can decisively reclaim this cluster.

A sustained break above these would open the way toward the 23.6% Fibo. retracement at 1.3575 and, later, the cycle anchor near 1.3671. On the downside, initial support emerges at the 50.0% retracement at 1.3468, with deeper floors at the 61.8% level at 1.3420 and the 78.6% retracement at 1.3352, ahead of a more important base around 1.3265.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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