GBP/USD grapples with lows as key inflation data looms ahead

GBP/USD is tangled up in the 1.2200 handle ahead of key CPI inflation prints.
US inflation data might miss expectations, paving the way for rate cut hopes.
Pound Sterling traders are hoping for a rebound in UK GDP growth.

Joshua Gibson FXStreet

GBP/USD is mired in near-term technical consolidation near the 1.2200 handle as key inflation metrics from the US and UK growth figures loom large through the midweek sessions. US Consumer Price Index (CPI) inflation is expected to accelerate, though a softening in US Producer Price Index (PPI) number has sparked a fresh round of investor hopes that inflation will not only cool, but do so enough to force a fresh bout of rate cutting rhetoric from the Federal Reserve (Fed).

Headline PPI inflation rose to 3.3% YoY versus the previous figure of 3.0%, while core PPI accelerated to 3.5% YoY compared to the previous 3.4%. While both figures came in below expectations, the print wasn’t quite the boon to investor sentiment that many were hoping for as inflation pressures continue to simmer away in the background, albeit at a slightly lower boil than economists forecast. With inflation metrics still trending well above annualized Federal Reserve (Fed) targets, PPI figures printing below forecasts is a distinction without a difference when it comes to expectations of interest rate decreases.

UK CPI inflation metrics will kick off the Wednesday market session, and median market forecasts expect a flat print of 2.6% YoY in the non-preliminary figure. On the US side, CPI is forecast to accelerate to 2.9% YoY from the previous 2.7%, and still holding well above the Fed’s 2.0% annual inflation target.

GBP/USD price forecast

Cable bidders were able to turn things around and keep bids nailed to the 1.2200 handle on Tuesday, but the pair is still drifting deep into bear country after tapping a fresh 15-month low earlier this week. The pair is down nearly 4% in January alone, and GBP/USD is on pace to close in the red for a fourth straight month if things don’t take a bullish turnaround soon.

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.

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 softens below 1.1750 amid ECB rate hold expectations

The EUR/USD pair declines to around 1.1730 during the early European session on Wednesday, pressured by renewed US Dollar demand. Nonetheless, the potential downside for the major pair might be limited amid the growing acceptance that the European Central Bank is done cutting interest rates.

When is the UK CPI inflation data and how could it affect GBP/USD?

The United Kingdom Office for National Statistics will publish the highly relevant Consumer Price Index (CPI) data for November on Wednesday at 07:00 GMT. GBP/USD is likely to stay subdued if UK CPI meets expectations. However, any upside surprise could cap losses by tempering dovish sentiment ahead of the Bank of England’s policy decision on Thursday.

Gold: Bulls await breakout through multi-day-old range amid Fed rate cut bets

Gold attracts fresh buyers during the Asian session on Wednesday, though it remains confined in a multi-day-old trading range amid mixed fundamental cues. The global risk sentiment remains on the defensive amid economic woes and fears of the AI bubble burst. Moreover, dovish US Federal Reserve expectations lend support to the non-yielding yellow metal, though a modest US Dollar uptick might cap any further appreciating move.

Bitcoin, Ethereum and Ripple extend correction as bearish momentum builds

Bitcoin, Ethereum, and Ripple remain under pressure as the broader market continues its corrective phase into midweek. The weak price action of these top three cryptocurrencies by market capitalization suggests a deeper correction, as momentum indicators are beginning to tilt bearish.

Ukraine-Russia in the spotlight once again

Since the start of the week, gold’s price has moved lower, but has yet to erase the gains made last week. In today’s report we intend to focus on the newest round of peace talks between Russia and Ukraine, whilst noting the release of the US Employment data later on day and end our report with an update in regards to the tensions brewing in Venezuela.

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.