GBP/USD spins its wheels near 1.25

GBP/USD roiled near the 1.2500 handle on Monday.
Pound traders are taking a backseat as markets focus on the Greenback.
Investor sentiment spread in both directions to kick off the new week.

Joshua Gibson FXStreet

GBP/USD spun in a circle on Monday, driven by broad-market flows into and out of the US Dollar (USD) as Pound Sterling (GBP) traders get dragged along by the tides. It's a quiet week on the UK side of the economic calendar, and trade war murmurs as well as an impending Federal Reserve (Fed) rate call are keeping market attention off of the Cable trade for now.

The Federal Reserve (Fed) is expected to hold rates steady at their upcoming meeting slated for Wednesday, but overall market expectations of further rate cuts for the year are on the rise. According to the CME's FedWatch Tool, rate markets are pricing in a total of 50 bps in rate cuts through 2025, up from the previous forecast of 25 bps.

US President Donald Trump kicked off his first meaningful trade war spat over the weekend with Colombia of all countries, threatening a wide 50% tariff on all goods from Colombia imported into the US if the country refused to accept planes loaded with Colombian migrants being returned home from the US. Most of the spat took place on social media and had little measurable impact on global markets. Still, President Trump's tariff threats and his willingness to use them on short notice will likely ruffle some feathers for investors that have been used to a less-chaotic method of trade governance.

GBP/USD price forecast

GBP/USD has beaten footprints into the charts on both sides of the 1.2500 handle on Monday, chalking in an intraday high above 1.2520 before pivoting back into the low side near 1.2480. With price action getting hung up on tech levels just south of the 50-day Exponential Moving Average (EMA) at 1.2517, bids are at risk of pricing in a near-term ceiling and giving bears a foothold in the daily charts.

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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