GBP/USD depreciates to near 1.2950 due to market caution ahead of US presidential election

GBP/USD faces challenges as the US Dollar appreciates amid market caution ahead of the US presidential elections.
The latest Reuters/Ipsos poll indicates that Harris holds a narrow lead at 46% compared to Trump's 43%.
UK's budget features £40 billion in tax increases designed to address public finance shortfalls and support funding for public services.

Akhtar Faruqui FXStreet

GBP/USD extends its losses for the second successive day, trading around 1.2950 during the Asian session on Thursday. This downside of the pair could be linked to the solid US Dollar (USD) as a market caution persists amid uncertainty surrounding the upcoming US presidential election.

Former President Donald Trump has made gains among Hispanic men as the November 5 US presidential election approaches. Meanwhile, Harris has seen increased support among white women. The race between the two candidates is extremely close, with Harris holding a slight lead of 46% to 43% in the latest poll conducted from October 16 to 21.

Traders are now focusing on upcoming key US data releases including PCE inflation data on Thursday and Nonfarm Payrolls (NFP) on Friday. On Wednesday, the Greenback encountered headwinds as the US Gross Domestic Product (GDP) annualized expanded by 2.8% in Q3, below 3.0% in Q2 and forecasts of 3.0%. However, the ADP Employment Change reported 233,000 newly added workers in October, marking the largest increase since July 2023.

The Pound Sterling (GBP) dipped following the release of the UK's new Labour government's first budget on Wednesday, which includes £40 billion in tax increases aimed at addressing public finance shortfalls and funding public services, according to CNBC. A significant revenue-generating measure in the budget is an increase in National Insurance (NI) contributions, which are taxes on earnings paid by employers.

Traders are also expected to pay close attention to a keynote speech by Bank of England (BoE) Deputy Governor Sarah Breeden at the Hong Kong Monetary Authority and Bank for International Settlements joint conference on the “Opportunities and Challenges of Emerging Technologies in the Financial Ecosystem.”

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

AUD/USD keeps range near 0.6950 after Australian trade data

AUD/USD consolidates near a two-month low, trading around mid-0.6900s in the Asian session on Thursday amid a bullish US Dollar. The US PCE data tempered October Fed hike bets, though oil-driven inflation fears remain supportive of elevated US bond yields. Meanwhile, Australia's trade surplus shrank sharply in August to AUD495M, having limited impact on the Aussie Dollar and the pair.

USD/JPY sits at weekly top above 158.00 as bullish USD counters intervention risks

USD/JPY is sitting at the top end of its weekly range above 158.00 in the Asian session on Thursday. Despite the softer US PCE data, oil-driven inflation risks keep US bond yields elevated near multi-year highs. Moreover, the US-Iran standoff benefits the safe-haven US Dollar and supports the pair. Broad US Dollar strength counters hawkish BoJ expectations and Japanese intervention risks.

Gold alternates gains with losses below $4,200

Gold trades without a clear direction on Thursday, always below the key $4,200 mark per troy ounce. The yellow metal’s vacillating price action comes amid the marked advance in the US Dollar coupled with steady effervescence in the Middle East conflict.

Crypto Today: Bitcoin, Ethereum, XRP struggle to regain momentum amid returning ETF outflows

Bitcoin trades broadly between support at $82,500 and resistance at $85,000. Ethereum similarly remains under pressure, trading below $2,700 while the $2,600 level provides immediate support. At the same time, Ripple has slipped below the pivotal $1.50 level.

Markets are pricing a Fed pause. The jobs data says the hike is still coming

The market has rapidly changed its mind about the Fed. Only a week ago, investors saw an October interest-rate hike as the most likely outcome. However, softer inflation and cautious comments from policymakers have since turned a pause into the dominant scenario.

Markets are pricing a Fed pause. The jobs data says the hike is still coming

The market has rapidly changed its mind about the Federal Reserve (Fed). Only a week ago, investors saw an October interest-rate hike as the most likely outcome. However, softer inflation and cautious comments from policymakers have since turned a pause into the dominant scenario. Yet beneath that dramatic repricing, the US economy is sending a considerably less dovish message.