GBP/USD extends backslide into a third straight day

GBP/USD shed weight for a third straight day on Tuesday.
Cable backslid 0.3% on the day, falling back into key technical levels.
A fresh batch of hot inflation data from the UK pummeled the Pound.

Joshua Gibson FXStreet

GBP/USD took another leg lower on Tuesday, falling around three-tenths of one percent and skidding into key moving averages. Key Consumer Price Index (CPI) inflation data from the United Kingdom (UK) sent Cable bidders reeling, as market bets of another Bank of England (BoE) rate cut before the end of the year slipped below 50%.

Cable traders now pivot to Thursday, where the latest batch of Purchasing Managers Index (PMI) survey results are due on both sides of the Atlantic. The Federal Reserve (Fed) Bank of Kansas also kicks off this year’s annual economic symposium on Thursday in Jackson Hole. UK PMI figures are expected to tick slightly higher, while US PMI aggregated survey results are expected to show a slight decline.

Jackson Hole will be on the general market radar throughout the remainder of the week and heading into the weekend, but the key event will be Fed Chair Jerome Powell’s speech during the symposium on Friday. The Fed is still battling steep interest rate cut expectations from both general markets and the Trump administration, but still-warm-to-the-touch US inflation data may throw a wrench in the works.

GBP/USD price forecast

GBP/USD sank for a third straight day on Thursday, chalking in another technical touch of the 50-day Exponential Moving Average (EMA) near 1.3450. The Dollar-Pound pairing has seen steady declines since flubbing a bullish push for the 1.3600 handle last week, but middling technical oscillators and a lack of meaningful momentum to the short side is keeping the pair bolstered into long-term bull country.

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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