GBP/USD heads into Friday on the backfoot after PMI data miss

GBP/USD broke a winning streak on Thursday, falling back into 1.3500.
Despite an overall bullish tilt, Cable is poised for a fresh downside challenge of key technical levels.
UK PMI figures missed the mark on Thursday, but Friday will be another shot at UK data redemption.

Joshua Gibson FXStreet

GBP/USD spoiled a three-day winning streak on Thursday, crumbling away from the 1.3600 handle and backsliding down to 1.3500. Purchasing Managers Index (PMI) data from both the United Kingdom (UK) and the United States (US) split markets down the middle, with US Services PMI figures beating the street and June’s UK PMI numbers broadly missing the mark.

Heading into the last trading session of the week, Cable traders find themselves on the back foot, but with one last shot at a data-fueled upswing, assuming UK economic figures will play ball. UK Retail Sales for June are expected to rebound to 1.2% MoM following May’s sharp -2.7% decline.

US Durable Goods Orders for June are also on the docket on Friday. Analysts are bracing for a sharp contraction in monthly durable goods, with median market forecasts calling for a -10.8% decline MoM to follow up on May’s strong 16.4% upswing.

GBP/USD price forecast

Cable’s recent bullish pivot has come under threat, with GBP/USD chalking in a sharp technical rejection from the 1.3600 region. Rising trendlines, climbing Exponential Moving Averages (EMA), and a general upwards trajectory in price action are all providing ballast on chart paper, but near-term momentum is still poised for a pullback to the 50-day EMA near 1.3475.

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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