GBP/USD backslides ahead of BoE rate call

GBP/USD fell 0.6% on Wednesday, easing back into near-term lows.
The Fed held rates steady, as expected, but tariff concerns are raising cautionary flags.
The BoE is expected to deliver a rate cut on Thursday.

Joshua Gibson FXStreet

GBP/USD fell back on Wednesday, shedding six-tenths of one percent as markets kept one foot firmly planted in the safe haven Greenback. The Federal Reserve (Fed) kept rates on hold, as markets broadly expected, but Fed policymakers remaining firmly stuck in a “wait-and-see” approach hampered risk appetite during the midweek market session. The Bank of England (BoE) is up next with its own rate call on Thursday, and is widely expected to deliver another quarter-point rate trim.

Forex Today: All eyes are on the Bank of England

Market sentiment declined after Fed Chair Jerome Powell's press conference. He stated that US trade tariffs could hinder Fed goals for inflation and employment this year. Powell warned that ongoing policy instability may compel the Fed to adopt a 'wait-and-see' approach to interest rates. Although consumer and business sentiment were severely impacted by the Trump administration's tariffs, the lack of significant negative economic data complicates the Fed’s justification for immediate interest rate changes.

Fed's Powell: Right thing to do is await further clarity

The BoE’s upcoming Thursday rate call is widely expected to be another quarter-point cut, the UK bank’s fourth cut since hitting peak rates in 2023. The BoE’s Moentary Policy Committee (MPC) is expected to vote nine-to-one in favor of delivering another rate cut in an effort to help bolster the wobbling UK economy.

GBP/USD price forecast

GBP/USD stumbled, falling back below the 1.3300 major price handle and keeping price action caught in a near-term consolidation trap. Despite intraday weakness, Cable remains firmly entrenched on the high side of recent momentum, with the pair trading close to multi-year highs north of 1.3400.

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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