GBP/USD Analysis: Factors Affecting the Pair’s Movement
Current Scenario
- GBP/USD remains close to a one-month low touched last week amid a bullish USD.
- Bets for a less aggressive Fed policy easing and geopolitical risks underpin the buck.
- Expectations for a faster BoE rate-cutting cycle weigh the GBP and favor bears.
The GBP/USD pair is struggling to capitalize on modest recovery gains registered over the past two days and is oscillating in a narrow range, around the 1.3050-1.3045 region during the Asian session on Monday. Spot prices remain well within striking distance of a one-month low touched last Thursday and seem vulnerable to prolong the recent retracement slide from the 1.3435 area, or the highest level since March 2022.
Factors Affecting GBP/USD Movement
- UK Consumer Price Index (CPI) Data: A surprise fall in the CPI to the lowest level since April 2021 and below the Bank of England’s (BoE) 2% target has lifted bets for a 25 basis point (bps) interest rate cut at the next BoE meeting.
- BoE Rate-Cutting Cycle: Money markets are pricing in the possibility of another BoE rate cut in December, which might continue to undermine the British Pound (GBP).
- USD Index (DXY): The underlying bullish sentiment surrounding the US Dollar (USD) validates the negative outlook for the GBP/USD pair.
The USD Index (DXY), which tracks the Greenback against a basket of currencies, kicks off the new week on a positive note and seems to have stalled its modest pullback from its highest level since early August touched last week. Growing market conviction that the Federal Reserve (Fed) will proceed with modest rate cuts over the next year keeps the US Treasury bond yields elevated and acts as a tailwind for the buck. Geopolitical risks also underpin the safe-haven USD.
Technical Analysis and Forecast
In the absence of any relevant market-moving economic releases, either from the UK or the US, the fundamental backdrop suggests that the path of least resistance for the GBP/USD pair is to the downside. Bearish traders might wait for acceptance below the 1.3000 psychological mark before placing fresh bets and positioning for a slide towards the 100-day Simple Moving Average (SMA) support, currently near the 1.2960 region.
Pound Sterling FAQs
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).
Factors Influencing the Value of the Pound Sterling
- Monetary Policy: 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 achieving price stability through interest rate adjustments.
- Economic Data Releases: Indicators such as GDP, Manufacturing and Services PMIs, and employment can impact the value of the Pound Sterling.
- Trade Balance: The Trade Balance measures the difference between exports and imports and can influence the strength of the Pound Sterling.
Understanding these factors can help investors and traders make informed decisions regarding the GBP/USD pair and other GBP-related investments.