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- The GBP/USD pair is trading in positive territory for the eighth consecutive day near the 1.3215 level in early Asian trading on Monday.
- Federal Reserve Chairman Jerome Powell indicated that interest rates would be cut in September, but he did not say how much or how fast the rate cuts would be.
- Bailey, the governor of the Bank of England, said it was too early to declare victory on inflation.
The GBP/USD pair is trading strongly around the 1.3215 level during the early Asian session on Monday. Federal Reserve The US central bank will begin easing monetary policy in September, which will weaken the US dollar and support the GBP/USD pair. Market participants are awaiting the release of US durable goods orders data for July, which is due later on Monday.
In Jackson Hole on Friday, Federal Reserve Chairman Jerome Powell gave a clear signal that the Federal Open Market Committee will lower the target range for the federal funds rate at its upcoming meeting on September 17-18 as inflation returns to a sustainable path toward its 2% target. However, Powell was reluctant to offer any hints about the size of the September rate cut and the pace of rate cuts this year as the Fed remains data-dependent.
The more persistent bets on a Fed rate cut continue to undermine the US dollar and create tailwinds for the GBP/USD pair. Rabobank analysts indicated that they expect the labor market to deteriorate further over the rest of the year, leading to four consecutive 25bp rate cuts at the September, November, December and January meetings.
On the other hand, speculation that the Bank of England’s policy easing cycle will be slower than that of other major central banks provides some support. Pound Sterling (GBP). Bank of England Governor Andrew Bailey said late Friday that inflation remains a major concern for the British central bank, although many pricing pressures have eased faster than expected. Bailey suggested it was too early to declare victory over inflation.
Frequently Asked Questions About Sterling
The British pound (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 in the world’s foreign exchange (FX) market, accounting for 12% of all transactions, with an average of $630 billion per day, according to 2022 data. The main trading pairs are GBP/USD, also known as the “cable”, which accounts for 11% of the FX market, GBP/JPY, or “the dragon” as traders know it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The most important factor that affects the value of the pound is the monetary policy set by the Bank of England. The Bank of England bases its decisions on whether it has achieved its primary goal of “price stability” – a stable inflation rate of around 2%. Its primary tool for achieving this is adjusting interest rates. When inflation is too high, the Bank of England will try to rein it in by raising interest rates, making it harder for people and businesses to access credit. This is generally positive for the pound, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls to a very low level, it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider cutting interest rates to reduce credit so that businesses will borrow more to invest in growth-generating projects.
Data released measures the health of the economy and can affect the value of the pound. Indicators such as GDP, manufacturing and service PMIs, and employment can all influence the direction of the pound. A strong economy is good for the pound. Not only does it attract more foreign investment, it may encourage the Bank of England to raise interest rates, which would directly boost the pound. Otherwise, if economic data is weak, the pound is likely to fall.
Another important piece of data relating to the pound is the trade balance. This measure measures the difference between what a country earns from its exports and what it spends on imports over a given period of time. If a country produces highly demanded exports, its currency will benefit purely from the additional demand generated by foreign buyers seeking to purchase these goods. Thus, a positive net trade balance strengthens the currency and vice versa for a negative balance.
