GBP/USD edges higher above 1.3450 as traders await Fedspeak, key US data

GBP/USD strengthens near 1.3460 in Thursday’s Asian session.
Traders brace for Fedspeak and US Q2 GDP growth data later on Thursday for fresh impetus.
Fiscal concerns and signs of slowdown in UK business activity could underline the Pound Sterling.

Lallalit Srijandorn FXStreet

The GBP/USD pair recovers some lost ground to around 1.3460 during the Asian trading hours on Thursday. The US Dollar (USD) weakens against the Pound Sterling (GBP) as traders await more cues from the Fedspeak later on Tuesday. Also, the final print of the US Gross Domestic Product (GDP) growth for the second quarter (Q2), Durable Goods Orders and weekly Initial Jobless Claims will be published.

Traders weighed the prospect of a Federal Reserve (Fed) easing cycle in the wake of a cautious tone from policymakers while awaiting data that may outline the impact of tariffs. Fed’s Powell struck a cautious tone on further easing on Tuesday, saying that the US central bank needs to continue balancing the competing risks of high inflation and a weak job market in coming policy decisions.

Meanwhile, San Francisco Fed President Mary Daly said on Wednesday that further rate reductions likely will be needed, as the central bank works to restore price stability and provide needed support to the labor market. However, Chicago Fed President Austan Goolsbee warned against a series of rate cuts.

Traders have priced in nearly a 43 basis points (bps) of rate cuts in the remaining two policy meetings this year, although remarks from policymakers indicated that the decision will depend on the upcoming inflation and labour data.

Rising UK fiscal worries following a significant increase in Britain’s public borrowings, along with a slew of downbeat UK economic data, might weigh on the Cable in the near term. Last week's figures showed that public sector net borrowing hit £18 billion, the highest for the month in five years. Economists expected government borrowing to come in significantly lower at £12.8 billion.

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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