British Pound holds steady near mid-1.3500s vs USD as traders eye UK GDP and US inflation

GBP/USD edges higher as USD selling remains unabated amid the BoJ-inspired JPY rally.
Rising Fed rate-hike bets and geopolitical uncertainties limit losses for the safe-haven USD.
Traders seem hesitant ahead of the release of the monthly UK GDP and US inflation figures.

Haresh Menghani FXStreet

The GBP/USD pair trades with a positive bias near mid-1.3500s during the Asian session on Wednesday, though it lacks bullish conviction and remains confined within the previous day's broader range. Meanwhile, the downside seems limited as traders await the release of monthly UK GDP and US inflation figures before placing fresh directional bets.

The key focus will be on the US Producer Price Index (PPI) and the Consumer Price Index (CPI), due on Thursday and Friday, respectively. The crucial data will be looked at for more cues about the US Federal Reserve's (Fed) policy path amid rising bets for a September rate hike and will influence the US Dollar (USD) price dynamics. This, in turn, should provide some meaningful impetus to the GBP/USD pair.

Fed path hinges on US inflation data as swaps lean toward another hike

Strategists at Scotiabank stress that the inflation data due this week will be pivotal for the policy outlook, arguing that “signs of progress on inflation need to be clear in this week’s PPI (Thursday) and CPI (Friday) for a Fed to hold.” They note that market pricing still favours further tightening, with swaps “continu[ing] to lean towards the idea of a hike, with OIS pricing in around 60% chance of a 25bps tightening move next week.”

In the meantime, the Bank of Japan (BoJ)-inspired rally in the Japanese Yen (JPY) keeps the USD depressed near its lowest level in over two weeks, touched on Tuesday. The British Pound (GBP), on the other hand, draws support from UK finance minister John Healey's optimistic growth agenda and commitment to fiscal discipline. This acts as a tailwind for the GBP/USD pair, but the uptick lacks bullish conviction.

Against the backdrop of inflation risks stemming from persistently higher energy prices, the upbeat US Nonfarm Payrolls (NFP) report lifted market bets for a September Fed rate hike. Moreover, escalating US-Iran tensions keep the geopolitical risk premium in play and lend some support to the safe-haven Greenback. This, in turn, is holding back traders from placing fresh bullish bets on the GBP/USD pair.

GBP/USD 4-hour chart

Technical Analysis

The GBP/USD pair hovers just under the 38.2% Fibonacci retracement at 1.3553 while holding above the 23.6% retracement at 1.3524. This positioning, together with spot prices trading over the 200-period Simple Moving Average (SMA) on the 4-hour chart, at 1.3502, but still capped by nearby Fibonacci hurdles, suggests a broadly neutral near-term tone.

A move beyond the 38.2% retracement could lift the GBP/USD pair to the 50.0% level at 1.3576 and then the 61.8% retracement at 1.3599. Beyond that, further barriers are seen at 1.3632 and the swing high region near 1.3675. On the downside, first support aligns with the 23.6% Fibo. level at 1.3524, ahead of the 200-period SMA at 1.3502, with a deeper floor around 1.3477 if selling pressure extends.

(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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