GBP/USD softens after UK data miss, US CPI still in the barrel

GBP/USD knocked lower after UK wages and labor data widely missed forecasts.
US CPI inflation data is on deck, poised to be a high-impact print.
Mid-tier UK trade data and US consumer sentiment figures to follow later in the week.

Joshua Gibson FXStreet

GBP/USD took a step lower on Tuesday, falling under the weight of a wide miss in UK wages and unemployment figures. US Consumer Price Index (CPI) inflation data is in the barrel for Wednesday, and Cable traders are set to grapple with mid-tier UK trade data later in the week.

Delegates from the Trump administration are finalizing trade talks with Chinese officials in London. Negotiations are nearing completion, with loose ends expected to be resolved after Tuesday's market close. Major concessions from either side are still unannounced or unachieved, leading to investor apprehension as trade tensions persist at the policy level.

The first CPI inflation data, reflecting the initial effects of the Trump administration’s global “reciprocal” tariffs, is anticipated on Wednesday, with forecasts predicting a rise in headline and core CPI. May’s annualized headline CPI inflation is projected to increase to 2.5% YoY from 2.3%, while core CPI is expected to rise to 2.9% from 2.8%.

Producer Price Index (PPI) inflation will be released on Thursday, likely holding steady at 3.1% YoY. The University of Michigan’s Consumer Sentiment Index will be published on Friday, with expectations for an increase in consumer sentiment.

GBP/USD price forecast

GBP/USD has retreated from its multi-year peaks, yet Cable bids are still buoyant. The pair remains stable in short-term consolidation near 1.3500 and continues to exhibit a strong bullish tendency, with prices significantly above the 200-day Exponential Moving Average (EMA) located near 1.2960.

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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