GBP/USD hovers around 1.2900, upside seems possible due to risk-on sentiment

GBP/USD may extend its gains as improved risk sentiment could support the pair.
The US Dollar weakened after disappointing US private payroll data heightened concerns over slowing US economic growth.
BoE Governor Bailey called on the US to resolve its global economic concerns through dialogue rather than imposing import tariffs.

Akhtar Faruqui FXStreet

GBP/USD edges lower after registering gains for the last three consecutive days, trading around 1.2890 during the Asian hours on Thursday. The US Dollar remains under pressure following weaker-than-expected US private payroll data, raising concerns about slowing economic momentum in the United States (US). Additionally, improved risk sentiment puts downward pressure on the Greenback, driven by another shift in US President Donald Trump’s tariff strategy.

The ADP Employment Change report for February showed just 77K new jobs, significantly below the 140K forecast and well under January's 186K reading. Market participants are now focused on Friday’s US Nonfarm Payrolls (NFP) report, which is expected to indicate a moderate recovery in job growth. Forecasts suggest net job additions will rise to 160K in February, up from January’s 143K.

On Wednesday, the White House announced that Trump is temporarily exempting automakers from newly imposed 25% tariffs on Mexico and Canada for one month. Additionally, reports from Bloomberg suggest he is also considering excluding certain agricultural products from tariffs on these countries.

In the United Kingdom (UK), Bank of England (BoE) Governor Andrew Bailey urged the United States on Wednesday to address its concerns about the global economy through dialogue rather than resorting to import tariffs, which were imposed this week by US President Donald Trump, according to Reuters.

Meanwhile, while testifying before the Treasury Committee in parliament, BoE policymaker Megan Greene emphasized the importance of a cautious and gradual approach to easing monetary restrictions. Greene stated, "It's likely inflation persistence will fade on its own accord," while reiterating that monetary policy will likely need to remain restrictive.

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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