GBP/USD snaps winning streak as Cable markets take a breather

GBP/USD saw little movement compared to recent price action on Thursday.
Momentum is faltering after a sharp correction in rate cut expectations.
Investors are hunkering down ahead of key US NFP jobs data figures on Friday.

Joshua Gibson FXStreet

GBP/USD faltered on Thursday, ending a stellar three-day run that saw the Pound Sterling gain 2.57% bottom-to-top against the Greenback from the start of the week. A sharp readjustment to central bank rate cut expectations means Cable will see a far thinner interest rate differential than previously anticipated, prompting a harsh rebalancing in currency markets.

Forex Today: The US Nonfarm Payrolls are coming!

Rate markets are now pricing in fewer than 50 bps in rate cuts from the Bank of England (BoE) in 2025, a sharp drawdown in rate cut expectations as central banks continue to grapple with sticky inflation. Despite a general weakening in the UK’s domestic economy which would normally prompt a rate response from the BoE, still-high inflation metrics have tied policymakers’ hands.

US President Donald Trump delivered yet another pivot on his tariff plans, announcing a temporary reprieve on tariffs for all products included in the USMCA agreement that he personally negotiated during his first term. Despite the continued walkback from the Trump administration on its own tariff threats, markets were unable to find enough risk appetite to tilt markets back into the high side.

US Nonfarm Payrolls (NFP) will take on renewed significance on Friday as investors begin to watch economic data in earnest. Although the US economy is in an overall healthy place, cracks are beginning to show in the labor market. A Fresh round of inflation pressures, largely attributed to tariff concerns, is also hobbling growth expectations.

GBP/USD price forecast

GBP/USD hit a speed bump at the 1.2900 handle, freezing the near-term bull run in its tracks and squeezing intraday bids into a tight consolidation candlestick. The Cable cleared the 200-day EMA near 1.2685 with ease, but bullish momentum is taking a breather.

Technical oscillators are still pinned in overbought territory, limiting bullish potential. However, an ongoing pattern of higher lows is baked into the chart as price action grinds higher from the technical bottom at 1.2100 in mid-January.

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

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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