GBP/USD maintains position around 1.3500 ahead of Q2 US GDP Annualized

GBP/USD may regain its ground amid rising concerns over Fed independence.
Fed Governor Cook’s exit could increase the likelihood of interest rate cuts.
CBI Retail Sales edged up to -32 in August from -34 in July, beating expectations of -33.

Akhtar Faruqui FXStreet

GBP/USD remains steady after two days of gains, trading around 1.3500 during the Asian hours on Thursday. The pair may further appreciate as the US Dollar (USD) struggles amid rising concerns over the US Federal Reserve’s (Fed) independence.

Traders await the Q2 US Gross Domestic Product (GDP) Annualized due later in the day. Focus will shift toward July Personal Consumption Expenditures (PCE) Price Index data, the Fed's preferred inflation gauge.

US President Donald Trump announced early Tuesday that he was removing Fed Governor Lisa Cook from her position on the Fed's board of directors. He also said that he was ready for a legal fight with Cook over falsified mortgage documents.

The dismissal of Fed Governor Cook could increase the likelihood of heavy interest rate cuts, given Trump’s ongoing pressure on the central bank to reduce borrowing costs. Traders are now pricing in more than 88% odds for a cut of at least a quarter-point at the Fed’s September meeting, up from 82% the previous week, according to the CME FedWatch tool.

The GBP/USD pair moves little following the release of the Confederation of British Industry's (CBI) Retail Sales, which improved slightly to -32 in August from -34 in July, better than the expected -33 reading. The reading suggests that retail sales volumes declined for the 11^th successive month.

The CBI noted that while companies continue to face elevated costs, they are raising prices at a slower pace than earlier in the summer, a trend that keeps the Bank of England cautious about service inflation. Meanwhile, weak demand and rising labor costs are squeezing margins, undermining confidence, and leading firms to scale back hiring and investment, the CBI added.

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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