Pound Sterling remains depressed vs USD; GBP/USD holds above 1.3400 as traders await US CPI

GBP/USD attracts some sellers as Hormuz risks act as a tailwind for the safe-haven USD.
The divergent BoE-Fed policy expectations favor bulls and act as a tailwind for spot prices.
Traders also seem reluctant and opt to wait for the crucial US consumer inflation figures.

Haresh Menghani FXStreet

The GBP/USD pair drifts lower during the Asian session on Friday, though it lacks follow-through selling and remains close to its highest level since late February, set earlier this week. Spot prices currently trade around the 1.3420-1.3415 region and seem poised to register strong weekly gains as investors now look to the latest US consumer inflation figures for a fresh impetus.

The crucial US Consumer Price Index (CPI) report is expected to show that inflation likely rose further in March amid the war-driven surge in Crude Oil prices. This could further discourage the US Federal Reserve (Fed) from cutting interest rates for a while. Adding to this, tensions around the Strait of Hormuz offer some support to the US Dollar (USD), which is seen as a key factor exerting some pressure on the GBP/USD pair.

Iran halted shipping traffic through the strategic waterway in response to brutal Israeli attacks on Lebanon. Adding to this, US President Donald Trump accused Iran of doing a very poor job of handling oil through the Strait of Hormuz, and that it was not the agreement they had. Trump also warned of renewed strikes if the Iran deal fails. This suggests that escalation risks remain on the table and supports Crude Oil prices.

Meanwhile, traders have sharply reduced Bank of England (BoE) rate hike bets and are now pricing in roughly 30-40 basis points (bps) of increases by the year-end. This still marks a significant divergence in comparison to the Fed's signal for one interest rate reduction by the end of this year and another in 2027. This, in turn, favors the GBP/USD bulls and warrants some caution before positioning for any further losses.

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.

AUD/USD holds steady near 0.7200 amid escalating US-Iran tensions

AUD/USD consolidates just below its highest level since mid-May, touched on Friday, and hovers around 0.7200 at the start of a new week amid mixed cues. Hawkish RBA expectations continue to act as a tailwind for the Aussie. Meanwhile, the upbeat US NFP report lifted Fed rate hike bets, which, along with escalating US-Iran tensions, underpins the safe-haven US Dollar and caps the currency pair.

USD/JPY hovers around 156.00 as more hawkish BoJ bets cap gains

USD/JPY holds steady above 156.00 on Monday as the US Dollar draws support from escalating US-Iran tensions and rising Fed rate-hike bets, bolstered by Friday's upbeat NFP report. Moreover, concerns over Japan’s fiscal outlook keep the Japanese Yen on the back foot and support the currency pair, though more hawkish BoJ expectations and a suspected intervention cap the upside.

$4,400: Gold struggles at that level, but bulls refuse to give up yet

Gold has kicked off a new week on a bearish footing, resuming the previous downside while battling the $4,400 level amid a United States holiday-led light trading. Gold is facing headwinds from the latest uptick in Oil prices, which continue to stoke inflationary concerns and flag the need for policy tightening globally.

Cardano: Strengthening momentum points to cautious upside extension

Cardano trades around $0.222 after rallying over 15% last week. Mixed derivatives data and mildly bullish on-chain metrics point to cautious market sentiment. Meanwhile, strengthening momentum indicators suggest ADA could see further gains if the recovery continues. Cardano derivatives metrics show a mixed sentiment. CoinGlass’ long-to-short ratio for ADA reads 0.94 on Monday.

US Dollar Weekly Forecast: Why one inflation report could matter more than a blockbuster NFP?

Joy can’t last forever, can it? The US Dollar rapidly faded its prior gains and resumed its marked downside this week, with the US Dollar Index coming close to its psychological 100.00 barrier, only to see that dream turn to ashes as market chatter reignited speculation that the Bank of Japan might hike its policy rate at its next meeting.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.