GBP/USD shuffles its feet as investors await key central bank moves
- GBP/USD churned just above the 1.3300 level on Monday.
- A hotly-anticipated Fed rate call is due this week.
- A quiet week on the UK side of the data docket gives way to a hectic schedule and a BoE rate call next week.
GBP/USD found little momentum on either side of the line on Monday, with the Cable pair churning chart paper just north of the 1.3300 handle to kick off a fresh trading week. Broad-market sentiment is largely hinging on an upcoming interest rate decision from the Federal Reserve (Fed) due during the midweek, and investors are shunning stepping too far into either the bullish or bearish side in the runup to one of the biggest rate calls of the year.
Fed rate call in the barrel
The Fed will wrap up two straight days of interest rate deliberations with a rate call and press conference on Wednesday, December 10. Markets are broadly anticipating a third straight interest rate cut from the Fed, with rate markets pricing in over 90% odds that the Fed will drop interest rates by another 25 basis points to round out the calendar year.
Beyond the decision itself, attention is turning to what Fed Chair Jerome Powell will signal about the path ahead. With cooling labor data and Powell’s term running to 2026, analysts expect him to emphasize a cautious, data-dependent approach rather than offering clear clues about the pace of cuts next year.
UK traders look ahead to meaningfui events
This week is downright sedate on the UK side of the economic data docket, but Pound Sterling trading will be bracing for a hectic release schedule next week, culminating in a potential interest rate cut from the Bank of England (BoE).
The array of policy stances at the BoE tends to be much wider than the often-sterilized statements from the American Fed, but BoE officials have been pivoting steadily into publicly embracing the idea of further interest rate cuts ever since the Monetary Policy Committee (MPC) voted by just a slim majority to keep rates on hold at the BoE’s last rate decision.
GBP/USD daily chart
Pound Sterling FAQs
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).
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.
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.
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.
