GBP/USD attracts some sellers below 1.3500 on renewed US Dollar demand

GBP/USD weakens to near 1.3495 in Monday’s Asian session.
The Fed’s Powell opened the door to resuming interest rate cuts.
Hot UK July inflation data diminish the odds of BoE rate reductions this year.

Lallalit Srijandorn FXStreet

The GBP/USD pair faces some selling pressure around 1.3495 during the Asian session on Monday. The major pair edges lower amid the renewed US Dollar (USD) demand. However, dovish remarks from the Federal Reserve (Fed) Chair Jerome Powell might cap the GBP/USD’s downside. Later on Monday, the US New Home Sales and Chicago Fed National Activity Index data will be published.

Fed's Powell said on Friday at the Jackson Hole symposium that the central bank is headed for an interest-rate cut as soon as its next policy meeting in September. Powell further stated that the US economy is facing a “challenging situation,” with inflation risks now tilted to the upside and employment risks to the downside. Growing expectations of US Fed rate cuts could weigh on the Greenback and help limit the major pair’s losses.

Traders see an 85% chance of a Fed rate cut next month after Powell signaled at Jackson Hole the Fed may ease before inflation fully returns to target amid a softening jobs market, the CME FedWatch tool showed.

On the GBP’s front, hotter-than-expected UK July inflation data prompted the expectation that the Bank of England (BoE) will delay further interest rate cuts. The BoE cut the interest rates from 4.25% to 4.0% earlier this month as the UK central bank resumed what it describes as a “gradual and careful” approach to monetary easing. A quarter-point cut is not fully priced in until March 2026. In the absence of top-tier UK economic data releases this week, the USD dynamic could drive the major pair's action in the short term.

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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