GBP/USD sinks below 1.3400 on strong US data, focus shifts to PCE

GBP/USD ends Thursday down 0.78%, trades below all major SMAs as it hits four week low.
US macro data trims dovish Fed bets, bolstering the Dollar, weighing on Sterling.
US docket features Core PCE, Consumer Sentiment and Fed speakers.

Christian Borjon Valencia FXStreet

The GBP/USD ended Thursday’s session with losses of over 0.78%, seeming poised to test lower prices as a scarce economic docket in the UK would leave traders adrift to dynamics linked to the US Dollar. The pair trades below the 20, 50, 100 and 200-day SMAs, after puking below 1.3400 as Friday’s Asian session begins.

Serling fell to a four-week low of 1.3324 on Thursday after the release of macroeconomic news in the US, spurred a trim of Fed dovish bets, which boosted the Greenback. From a technical perspective, if GBP/USD slides beneath the 1.33 handle, the next area of interest would be the 200-day SMA At 1.3124.

Coming up: Tranche of US data, including core PCE and Fed speakers

The docket in the UK is empty on Friday, aside from UK’s T-bill auctions. In the US. the Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index is expected to dip by 0.2% MoM down from 0.3% a month ago. In the twelve months to August, core PCE is projected to remain unchanged at 2.9% as in July.

Also, traders would eye for the release of the University of Michigan (UoM) Consumer Sentiment final print and speeches by Fed officials like Richmond Fed President Thomas Barkin and Fed Governor Michelle Bowman.

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, 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

Christian Borjon Valencia

FXStreet

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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