Pound Sterling seems vulnerable near one-month low vs. USD as traders await US data

GBP/USD attracts sellers for the fifth consecutive day and is pressured by a combination of factors.
Receding Fed rate cut bets support the USD, while rising March BoE rate cut bets weigh on the GBP.
Traders now look forward to the Advance US Q4 GDP and the US PCE Price Index for a fresh impetus.

Haresh Menghani FXStreet

The GBP/USD pair prolongs its weekly downtrend for the fifth consecutive day on Friday and slides back closer to a nearly one-month low, touched the previous day. Spot prices trade below mid-1.3400s during the Asian session on Friday and seem vulnerable to slide further as traders now look to important US macro data for a fresh impetus.

The Advance US Q4 GDP report, along with the US Personal Consumption Expenditure (PCE) Price Index, is due for release later today and will be looked upon for more cues about the US Federal Reserve's (Fed) rate-cut path. This, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics. In the meantime, reduced bets for more aggressive policy easing by the US central bank assist the USD to stand firm near its highest level since January 23 and turn out to be a key factor exerting pressure on the GBP/USD pair.

Meanwhile, the Pound Sterling (GBP) continues with its relative underperformance on the back of the growing acceptance that the Bank of England (BoE) will lower borrowing costs at its next policy meeting in March. The expectations were lifted by the disappointing UK jobs report, which showed that the Unemployment Rate rose to 5.2% during the three months to December and pointed to a slowdown in wage growth. Moreover, the UK consumer inflation fell to its lowest level in nearly a year, reaffirming dovish BoE bets.

Apart from this, the GBP/USD pair's downfall could further be attributed to some follow-through technical selling following this week's breakdown below the 1.3530-1.3520 resistance-turned-support. This, in turn, validates the near-term negative outlook, suggesting that a positive reaction to weak US macro data could be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Nevertheless, spot prices remain on track to register heavy weekly losses, and the fundamental backdrop backs the case for a further depreciating move.

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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