GBP/USD taps fresh 40-month high on renewed Greenback softness

GBP/USD closed above the 1.3600 level for the first time since February of 2022.
UK economic data continues to soften, limiting bullish Cable momentum.
US consumer sentiment figures to cap off the trading week.

Joshua Gibson FXStreet

GBP/USD climbed into fresh 40-month highs on Thursday, closing above the 1.3600 handle for the first time in over three years. Broad-market investor sentiment climbed after US Producer Price Index (PPI) inflation figures came in cooler than expected, pummeling the US Dollar as investors pile back into bets of a Federal Reserve (Fed) rate cut in September.

UK Industrial and Manufacturing Production figures continue to sink, contracting at a faster pace than expected in April. US PPI inflation also chilled in May, pushing off immediate concerns of a tariff-fueled spark of inflation. However, tumultuous policy choices by the Trump administration could still kick off a fresh round of price volatility, and are expected to push inflation metrics higher in the months ahead.

The University of Michigan’s (UoM) Consumer Sentiment Index for June will land on markets on Friday to wrap up the trading week, and median market forecasts expect an overall rebound in aggregated consumer sentiment survey results. Investors will also keep a close eye on the UoM’s 1-year and 5-year Consumer Inflation Expectations, which are holding uncomfortably high at 6.6% and 4.2%, respectively.

GBP/USD price forecast

Despite cracking the ceiling and pushing into fresh multi-year peaks, GBP/USD is still too close to recent congestion for bulls to declare outright victory just yet. Cable could be poised for a fresh technical pullback, which would put price action on pace to fall back into a still-rising trendline from January’s lows near 1.2100.

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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