GBP/USD trades with positive bias around 1.3530-1.3535 area, lacks bullish conviction

GBP/USD attracts some dip-buyers at the start of a new week amid subdued USD price action.
Despite the upbeat NFP report, the USD bulls seem reluctant ahead of the US-China trade talks.
The fundamental backdrop warrants caution before placing aggressive intraday directional bets.

Haresh Menghani FXStreet

The GBP/USD pair edges higher during the Asian session on Monday and for now, seems to have stalled its retracement slide from the highest level since February 2022, around the 1.3615 region touched last week. The uptick, however, lacks bullish, with spot prices currently trading around the 1.3530-1.3535 region, up only 0.05% for the day.

The US Dollar (USD) struggles to capitalize on Friday's upbeat US jobs data-inspired move higher and kicks off the new week on a subdued note, which, in turn, is seen as a key factor lending support to the GBP/USD pair. Moreover, Bank of England (BoE) Governor Andrew Bailey's remarks last week, saying that the central bank will stick to a gradual and careful approach to cutting interest rates amid trade uncertainties, act as a tailwind for the currency pair.

Meanwhile, a stronger-than-expected US Nonfarm Payrolls (NFP) report dampened hopes for imminent Federal Reserve (Fed) rate cuts this year. This is holding back the USD bears from placing fresh bets and capping the upside for the GBP/USD pair. Investors also seem reluctant and opt to wait on the sidelines ahead of the key US-China negotiations in London aimed at defusing the high-stakes trade dispute between the world's two largest economies.

Moving ahead, there isn't any relevant market-moving economic data due for release on Monday, either from the UK or the US, leading the GBP/USD pair at the mercy of the USD price dynamics. Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for the resumption of the pair's well-established uptrend witnessed over the past two months or so any meaningful intraday gains.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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