GBP/USD grapples with recovery ahead of quiet end to the week

GBP/USD pumped the brakes on a near-term bearish turnaround.
US NFP numbers cooled market fears after thumping forecasts.
US holiday Friday will make for a quiet end to a bumpy week.

Joshua Gibson FXStreet

GBP/USD churned away near the low-end of a near-term decline on Thursday, bolstered by selling pressure forcing the US Dollar lower after US Nonfarm Payrolls (NFP) jobs data came in hotter than expected. Markets were expecting a below-forecast print after this week’s ADP jobs preview showed a sharp contraction in private payrolls, but a steep increase in government-based education hiring offset declines in private sector employment.

Friday is set to fizzle in market impact terms. The US side of markets shuttered early on Thursday, and will remain closed for the US holiday on Friday. A mid-tier public appearance from Bank of England (BoE) policymaker Alan Taylor is slated for Friday, but is unlikely to move markets. There is little else of material importance on the UK side of the data docket for Friday.

The UK government is grappling with a lopsided economic slowdown, and UK Prime Minister Kier Starmer is struggling to maintain control of things. The PM has come under fire for failing to deliver steep cuts to welfare payments that were a key pillar of his election policies, and also avoided taking tax hikes off the table entirely, drawing ire from both markets and UK political proponents alike.

Strong gains on headline US NFP net job increases have also pummeled broad-market rate cut hopes. June’s jobs beat has obliterated any market expectations for a rate cut at the Federal Reserve’s (Fed) upcoming rate call at the end of the month, and odds of three rate cuts before the end of the year have also been called into question.

GBP/USD price forecast

GBP/USD recovered some of its footing on Thursday, pulling back slightly after a midweek stumble dragged Cable bids sharply lower. The pair retested a rising trendline near the 1.3600 handle, finding technical support and halting downside momentum.

GBP/USD is holding well into bullish territory as the US Dollar flounders across the board, and the Pound Sterling is poised to continue holding near multi-year highs. However, bidders will first have to overcome the latest technical ceiling priced in just south of 1.3800.

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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