GBP/USD struggles for firm near-term direction, remains confined in a range around 1.2900

GBP/USD remains on the defensive on Monday amid a bullish US Dollar.
The BoE’s hawkish tilt underpins the GBP and limits losses for the major.
Traders look to this week’s UK/US macro releases from a fresh impetus.

The GBP/USD pair kicks off the new week on a softer note, albeit it lacks follow-through selling and remains confined in a range around the 1.2900 mark amid mixed fundamental cues.

The US Dollar (USD) holds steady below a four-month high touched last week amid expectations that US President-elect Donald Trump's policies would spur inflation and restrict the Federal Reserve's (Fed) ability to ease policy aggressively. This, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair, though the Bank of England's hawkish stance helps limit the downside.

In fact, the BoE warned that the expansive Autumn Budget introduced by Chancellor Rachel Reeves is expected to fuel inflation, suggesting that it adopt a cautious stance toward rate cuts in 2025. Furthermore, the risk-on mood contributes to capping gains for the safe-haven Greenback and offers some support to the GBP/USD pair, warranting some caution before placing aggressive bearish bets.

Investors also seem reluctant and might prefer to move to the sidelines ahead of important macro releases from the UK and the US. This week's economic docket features the UK jobs data on Tuesday, the US consumer inflation figures and the Producer Price Index (PPI) on Wednesday and Thursday, respectively, followed by the Prelim Q3 UK GDP and the US Retail Sales on Friday.

Apart from this, investors will take cues from Fed Chair Jerome Powell and BoE Governor Andrew Bailey's speech late Thursday. This, in turn, will determine the next leg of a directional move for the GBP/USD pair. In the meantime, the underlying strong bullish tone surrounding the USD might continue to cap spot prices, suggesting that any attempted move-up could be seen as a selling opportunity.

(This story was corrected on November 11 at 08:35 GMT to say Fed Chair Jerome Powell and BoE Governor Andrew Bailey's speech late Thursday, not on Friday.)

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.

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