GBP/USD steadies at fresh near-term highs

GBP/USD spun a tight circle near 1.3400 on Thursday.
Cable markets are tilting into the bullish side following the Fed’s third straight interest rate cut.
A quiet end to the week gives way to a hectic UK release schedule next week.

Joshua Gibson FXStreet

GBP/USD is holding firmly in bullish territory heading into the tail end of the week, but Cable bidders ran into a technical resistance point at the 1.3400 handle on Thursday. The Federal Reserve (Fed) delivered a third straight interest rate cut this week, bolstering broad-market risk appetite and pushing the US Dollar (USD) into the low side across the board.

Fed Chair Jerome Powell cautioned following the Fed’s latest interest rate trim that further moves on rates are less than likely heading into 2026, and the majority of Fed policymakers see barely two more interest rate cuts over the next two years. Markets responded by ramping up bets that the Fed will get bullied into a faster pace of interest rate cuts through next year.

US labor data also missed the mark on Thursday, with US Initial Jobless Claims jumping to 236K per week, above the expected 220K. Wholesale inventories also rose much faster than expected in September, but the backdated figure is unlikely to sway investor outlooks.

The remainder of the week is largely lacking in meaningful economic events, but that all ends next week. Cable traders will be staring down the barrel of four straight days of high-impact data releases from next Tuesday, starting with the latest rolling three-month UK labor statistics and global Purchasing Managers Index (PMI) survey results. Wednesday brings the latest UK Consumer Price Index (CPI) inflation figures, and the real calendar-rattler will be the Bank of England’s (BoE) latest interest rate call, slated for Thursday. UK Retail Sales figures are trailing behind the BoE, and will close out the week’s UK data docket on Friday.

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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