British Pound holds near six-month highs as debt woes keep US Dollar rallies shallow

GBP/USD remains bid around 1.3650 with bulls aiming for the six-month high, at 1.3675.
Investors' concern about the US Treasury's bond buyback plans is keeping the US Dollar under pressure.

Guillermo Alcala FXStreet

The British Pound (GBP) holds mild gains for the fourth consecutive day against the US Dollar (USD) on a calm Monday session, as ongoing concerns about the US Treasury’s bond buyback plans keep US Dollar bulls subdued. The GBP/USD pair is trading at the midrange of the 1.3600s in the early London Trading session, just below six-month highs, at 1.3675.

UK data released on Friday was mixed, as retail consumption increased below expectations in July, while August’s preliminary services and manufacturing activity data beat expectations, providing some support to the Pound.

In the US, the preliminary S&P Global Purchasing Managers Index (PMI) data revealed that the services sector grew at its fastest pace in nearly two months, but the US Dollar was little changed. The Greenback fell sharply across the board last week, following the US Treasury’s announcement of a plan to double buybacks on long-dated securities, aimed at taming the Treasury yield’s rally.

All eyes are on the new sanctions on Iran

The calendar is thin on Monday, and the focus has turned back to Iran, after US Treasury Secretary Scott Bessent vowed on Sunday to an "economic D-Day" for the Islamic Republic. Bessent affirmed that Washington is preparing the “single greatest offensive ever marshalled against an adversary”, which will be announced in a press release during Monday's US session

Strategists at Scotiabank highlight that the GBP/USD's “underlying trend dynamics remain solidly bullish.” They point out that, following “a period of range trading and two tests of 1.3150 (April and June),” the pair is now challenging key resistance. In their view, “a sustained push above 1.3650/60 implies potential for an extension towards the 1.41 zone over the balance of the year,” underscoring the bank’s positive bias on the Pound’s near- to medium-term prospects.

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

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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