GBP/USD gains traction above 1.2650, eyes on US PMI data

GBP/USD edges higher to 1.2655 in Monday’s early Asian session.
The softer US PCE inflation data prompted speculation that the Fed will cut the rate this year.
The Opposition Labor Party is expected to win over the UK Prime Minister Rishi Sunak-led Conservative Party.

Lallalit Srijandorn FXStreet

The GBP/USD pair trades on a stronger note around 1.2655 during the early Asian session on Monday. The US Dollar (USD) edges lower as the US Personal Consumption Expenditures (PCE) Price Index for May eased to its lowest annual rate in more than three years, which provides some support to the major pair. Traders await the US June ISM Purchasing Managers Index (PMI) for fresh impetus, which is due on Monday.

The US core PCE, the Federal Reserve’s (Fed) preferred inflation measure, continued to cool in May, prompting speculation that the Fed will cut the interest rate this year. The core PCE figure climbed 2.6% from 2.8% in April, matching the forecast. The headline PCE increased 2.6% YoY in May from 2.7% prior, in line with the estimation.

The Fed officials emphasized in recent weeks that they will cut interest rates when they gain confidence that inflation has decelerated to the 2% target. New York Fed President John Williams said that inflation is still at problematic levels and the US central bank will act to lower it. Fed Governor Michelle Bowman noted that while current Fed policies should be enough to bring inflation back to target, adding that the central bank shouldn't be unwilling to weigh further rate cuts if inflation data remains stubborn.

The general election in the United Kingdom will be held on Thursday and this event is likely to trigger the volatility in the pair. According to the latest exit polls, the Opposition Labor Party is expected to win over the UK Prime Minister Rishi Sunak-led Conservative Party.

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, aka ‘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.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD holds around 1.1750 after dismal German PMI data

EUR/USD maintains its range trade at around 1.1750 in European trading on Tuesday. The pair's volatility remains low, with investors awaiting a bunch of top-tier economic data releases from the Eurozone and the US. The downbeat preliminary German business PMIs cap the Euro's upside ahead of the EU PMI release.

GBP/USD remains below 1.3400 after mixed UK labor data

GBP/USD is trading around a flat line below 1.3400 in the European session on Tuesday. The UK ILO Unemployment Rate rose to 5.1% in the quarter to October, meeting expectations, while the pay growth cooled down sligthly in the same period, doing little to affect the Pound Sterling.

Gold retreats from seven week highs on profit-taking; all eyes on US NFP release

Gold price loses momentum below $4,300 during the early European trading hours on Tuesday, pressured by some profit-taking and weak long liquidation from the shorter-term futures traders. Furthermore, optimism around Ukraine peace talks could weigh on the safe-haven asset like Gold.

Sui Price Forecast: Sui slips below $1.50 as network demand and risk appetite wane

Sui remains under intense bearish pressure, extending losses by 1% at press time on Tuesday for the third straight day.

NFP preview: Complex data release will determine if Fed was right to cut rates

The long wait is over, and the Bureau of Labor Statistics in the US will release nonfarm payrolls reports for both November and October at 1330 GMT on Tuesday. The overall NFP figure for October is expected to be -10k, however, it is expected to be influenced by a massive 130k drop in federal department workers.

BNB Price Forecast: BNB slips below $855 as bearish on-chain signals and momentum indicators turn negative

BNB, formerly known as Binance Coin, continues to trade down around $855 at the time of writing on Tuesday, after a slight decline the previous day. Bearish sentiment further strengthens as BNB’s on-chain and derivatives data show rising retail activity.