GBP/USD rises to near 1.3600 due to risk-on mood, UK PMI data eyed

GBP/USD may further appreciate as the US Dollar weakens amid improved market sentiment.
The European Union and the United States are nearing an agreement to implement 15% US tariffs on EU goods.
Traders await S&P Purchasing Managers Index data from the United Kingdom on Thursday.

Akhtar Faruqui FXStreet

GBP/USD remains steady after four days of gains, trading around 1.3580 during the Asian hours on Thursday. The pair maintains its position near two-week highs as the US Dollar (USD) continues to weaken amid risk-on sentiment, driven by the optimism over further trade deals between the United States (US) and key partners.

The Financial Times reported that the European Union (EU) and the United States (US) are closing in on a deal that would impose 15% tariffs on EU goods imported into the US. Additionally, US President Donald Trump announced on Tuesday a major tariff deal with Japan, which includes a 15% tariff on Japanese exports.

However, the downside of the US Dollar could be restrained amid easing concerns over the Federal Reserve’s (Fed) independence. US Treasury Secretary Scott Bessent said late Thursday that a nominee for the next Federal Reserve Chair is likely to be announced in December or January. Bessent emphasized that there is “no rush” to select a successor to current Fed Chair Jerome Powell.

In the United Kingdom (UK), traders will likely observe S&P Purchasing Managers Index (PMI) data, due on Thursday. The report is expected to show a slight improvement in manufacturing and growth in the service sector in July. Friday’s Retail Sales are also projected to rebound in June, helped by hot weather.

The Bank of England (BoE) is anticipated to temporarily pause its sales of long-term GILTS due to subdued demand from traditional buyers like pension funds. Meanwhile, traders have slightly reduced their expectations for BoE policy easing, though they still project two rate cuts in 2025.

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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