GBP/USD treads water above 1.3500, stays muted after RICS Housing Price Balance

GBP/USD remains silent as the UK RICS Housing Price Balance declined to -19% in August.
The US Dollar may lose ground as softer PPI boosts Fed easing prospects for September.
Stronger August US Consumer Price Index data may increase the odds for a bumper Fed rate cut next week.

Akhtar Faruqui FXStreet

GBP/USD moves little for the second successive day, trading around 1.3520 during the Asian hours on Thursday. The pair holds steady after the United Kingdom’s (UK) RICS Housing Price Balance fell to -19% in August, its weakest level in nearly two years, down from -13% in July, as subdued buyer demand continues to pressure prices. The reading was worse than expected -10 reading for the same period.

The Pound Sterling (GBP) may hold its ground against its peers as traders expect the Bank of England (BoE) to hold interest rates steady at 4% in the monetary policy meeting in September. The upcoming UK GDP data, due Friday, is anticipated to reveal stagnant monthly growth following June’s 0.4% increase. Evidence of slowing economic momentum could reinforce market expectations for additional BoE rate cuts later this year.

The US Dollar (USD) could face challenges as the CME FedWatch tool suggests that markets are now fully pricing in a 25 basis points (bps) rate cut at the Fed's September meeting, following softer-than-estimated US Producer Price Index (PPI) data.

Traders now turn to the August US Consumer Price Index (CPI), due later today, which could strengthen expectations for a larger 50-basis-point Fed rate cut next week. The headline CPI is forecasted to rise by 2.9% YoY in August, while the core CPI is projected to increase 3.1% YoY during the same period.

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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