GBP/USD recovers balance post-US Retail Sales

GBP/USD traded back above 1.2860 after US Retail Sales data beat.
Improving economic data releases ease market fears of US recession.
UK GDP met expectations, and manufacturing improved more than expected.

Joshua Gibson FXStreet

GBP/USD recovered back into the high side on Thursday after a bullish tilt in UK data prints coupled with better-than-expected US Retail Sales figures helped to improve overall market sentiment and keep the Greenback pinned on the low side.

US Retail Sales growth lurched to an 18-month high of 1.0% MoM in July, well above the forecast 0.3% and entirely engulfing the previous month’s -0.2% contraction. Improving economic health indicators are helping to stave off recent concerns of a potential recession within the US. However, rate markets got cold water thrown on recent bets of a double cut from the Federal Reserve (Fed) in September.

On the UK side, Gross Domestic Product (GDP) figures for the second quarter printed exactly as expected, rising 0.6% QOQ and 0.9% YoY. Annualized GDP growth figures rebounded from the previous print of 0.3%, and UK Manufacturing Production swelled by 1.1% MoM in June, well above the forecast 0.1% and recovering from the previous month’s revised 0.3%.

GBP/USD price forecast

Cable’s bullish recovery on Thursday gave the pair the help it needed to remain on the high side of the 50-day Exponential Moving Average (EMA) 1.2787. GBP/USD caught a technical bounce after hitting the 1.2800 handle early Thursday, but bulls ran out of steam just before they could chalk in a fresh two-week high. Intraday price action is churning just north of 1.2850.

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, aka ‘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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