GBP/USD lacks firm intraday direction, flat lines around mid-1.3600s

GBP/USD struggles to gain any meaningful traction amid a combination of diverging forces.
BoE rate cut bets weigh on the GBP and largely offset the underlying USD bearish sentiment.
The market focus now shifts to the release of the FOMC meeting minutes on Wednesday.

Haresh Menghani FXStreet

The GBP/USD pair kicks off the new week on a subdued note and oscillates in a narrow band around mid-1.3600s during the Asian session amid mixed fundamental cues.

The British Pound (GBP) drew some support last week from Prime Minister Keir Starmer’s announcement that Chancellor Rachel Reeves would remain in office for the foreseeable future. However, the growing possibility of a Bank of England (BoE) rate cut as early as August acts as a headwind for the GBP/USD pair. In fact, BoE Governor Andrew Bailey stated that interest rates are moving downwards, while MPC member Alan Taylor called for faster rate cuts amid the risk of a hard landing for the UK economy.

The downside for the GBP/USD pair, however, remains cushioned in the wake of the underlying bearish sentiment surrounding the US Dollar (USD). Investors remain worried that US President Donald Trump's massive tax-cut and spending bill would explode the federal deficit and worsen America’s long-term debt problems. This, along with firming expectations that the Federal Reserve (Fed) will resume its rate-cutting cycle in the near future keeps the USD pinned near its lowest level since February 2021.

Hence, investors will closely scrutinize FOMC meeting minutes, due on Wednesday, for cues about the Fed's rate-cut path, which will drive the USD demand and provide some meaningful impetus to the GBP/USD pair. In the meantime, spot prices seem more likely to extend the sideways consolidative price move in the absence of any relevant market-moving economic releases on Monday, either from the UK or the US.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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