GBP/USD churns ahead of quiet week

GBP/USD waffled near 1.2600 on quiet start to the trading week.
Market flows are likely to remain tepid on US holiday-thinned week.
GBP-centric economic data remains light through Friday.

Joshua Gibson FXStreet

GBP/USD churned chart paper near the 1.2600 handle, finding thin gains through the day’s market window but failing to recapture the technical level as market flows do little to bolster the Pound Sterling. The UK side of the week’s economic calendar is constrained, and a fresh print of key US inflation data on Wednesday will give way to a shortened trading week on the US side as Americans prepare for their Thanksgiving holiday.

A general improvement in broad-market risk appetite trimmed the top off of Greenback bidding to kick off the new trading week, giving the Pound Sterling a mild boost and keeping Cable bids chewing on bids just south of the 1.2600 handle. GBP traders will be grappling with a low-impact release calendar throughout the week, and US session market flows will be front-loaded onto Tuesday and Wednesday before the holiday slowdown.

The Federal Open Market Committee’s (FOMC) latest Meeting Minutes will be released later in the day on Tuesday, giving traders a glimpse into the Federal Reserve’s (Fed) latest discussions about the direction of interest rates looking forward. Wednesday will follow up with another update to US Personal Consumption Expenditure Price Index (PCEPI) inflation, a key reading of price increases underpinning the US economy. Wednesday also brings a quarterly update of UIS Gross Domestic Product (GDP) growth. Annualized core PCEPI inflation is set to accelerate again in October and forecast to increase to 2.8% from the previous 2.7%. Qoq US GDP growth in the third quarter is expected to hold steady at 2.8%.

GBP/USD price forecast

GBP/USD remains hobbled on the south side of the 1.2600 handle, churning bids north of 1.2500 as the pair finds some breathing room after another leg lower from early November’s choppy plateau just below 1.3000. Cable reached a six-month low of 1.2487 late last week, clipping into a 7% decline top-to-bottom from September’s peaks at 1.3434.

In the near-term, Pound bulls hoping for an end to the current Greenback upshot will be looking for intraday bids to return to the 200-day Exponential Moving Average (EMA) near 1.2840, while long-run short positions will be looking for an opportunity to redevelop momentum and drag Cable back to 2024 lows at the 1.2300 handle.

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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