GBP/USD hesitates at four-year highs following lackluster Fed rate hold

GBP/USD remains stubbornly close to multi-year highs heading into Thursday.
The Fed held rates steady as markets expected, giving little indication of policy stance shifts.
Investors await further headline development on a possible Trump pick for Fed Chair.

Joshua Gibson FXStreet

GBP/USD churned in place on Tuesday, hitting a brief patch of volatility but otherwise holding steady near four-year highs as the US Dollar (USD) struggles to find its footing. The Federal Reserve (Fed) held interest rates steady, as many investors broadly anticipated, but the Fed’s rate statement and Fed Chair Jerome Powell both failed to give any hints about potential shifts toward future rate cuts, which many investors broadly hoped.

With the Fed’s first rate call of the year out of the way, attention now shifts to political central bank matters. US President Donald Trump has been soft-rolling towards announcing a new Fed Chair pick to replace Jerome Powell, whose term ends in May. Key Trump officials have been drumming up anticipation for the president’s next pick, with Treasury Secretary Scott Bessent hinting that Trump’s list of potential candidates, which has allegedly been whittled down to just one name, could come within the next week.

“The next week” has been a popular catch-all bin for Trump officials to lump policy expectations into, and typically means anytime between several weeks to several months. President Trump, who selected Jerome Powell as head of the Fed during his first term, has been on an on-again, off-again warpath to have Powell replaced early after the Fed failed to deliver rapid-fire interest rate cuts upon request from the White House.

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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