GBP/USD extends declines to kick off the new trading week

GBP/USD fell further on Monday, heading toward 1.3400.
The Pound Sterling has lost over 2.5% top-to-bottom from July’s high of 1.3788.
Key inflation metrics for both the US and the UK still lie ahead.

Joshua Gibson FXStreet

GBP/USD sank further on Monday, closing lower for a seventh consecutive market session and slipping back below the 50-day Exponential Moving Average (EMA) for the first time since mid-April. Markets are expecting the latest round of tariff threats from US President Donald Trump to end with yet another delay or a suspension, but rough economic data from the UK, as well as a general level of unease for investors, is keeping risk appetite at bay and bolstering the safe haven US Dollar.

A new deadline for a wide swath of tariffs has been arbitrarily penciled in for August 1, following another delay of Trump’s “undelayable” reciprocal tariffs that were announced in April. On top of the Trump administration’s “liberation day” reciprocal tariffs, Trump is now threatening double-digit tariff increases on some of the US’s closest trading partners, including South Korea, Japan, Canada, and Mexico.

Beginning on Tuesday, the latest round of US inflation data is on the docket. US Consumer Price Index (CPI) inflation data through June is expected to accelerate as the first batch of tariffs that Trump successfully implemented begins to take hold on the US economy and leak through to headline datasets over the coming months. The UK follows up with its own round of headline CPI inflation data early Wednesday. UK CPI inflation is expected to hold steady at previous figures in June.

GBP/USD price forecast

Continued easing in Cable bids has pushed the Pound Sterling to fresh two-week lows. The pair is testing below the 50-EMA for the first time in almost three months as Cable backslides from multi-year highs posted as recently as early July.

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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