GBP/USD rally stops but decline remains limited

VaselineAugust 22, 2024

0 3 minutes read

GBP/USD rally stops but decline remains limited

GBP/USD managed to hit a new 13-month high before falling back.
Cable ended Thursday where it started, trading north of 1.3000.
UK PMI figures improved broadly, but US mixed PMI fueled risk aversion.

GBP/USD hit another fresh 13-month high on Thursday, climbing to 1.3130 before broader market sentiment soured, strengthening the greenback. Cable pulled back on the day’s opening bids around 1.3090 after the US Purchasing Managers’ Index (PMI). the numbers entered distorted.

Forex Today: Investors look to Jackson Hole and low-rate bets

Friday will see all eyes on Federal Reserve (Fed) Chairman Jerome Powell, who is scheduled to speak at the Jackson Hole Economic Symposium. Markets hope the Fed chief will introduce firmer guidance on how likely the Fed is to cut in September, as well as by how much.

Market participants continue to long for a September cut, but Thursday’s PMI data triggered a pullback from a recent surge in bets that the Fed would cut by 50 bps on September 18. Rate markets retreated to a healthier overall expectation of a single quarter point. cut in September, pricing in about a 75% chance of a 25bps rate cut.

UK PMI figures rose to a larger than expected print in August, with the composite, manufacturing and services PMI components all printing above forecasts and rising from their previous figures. UK services activity rose to 53.3 from 52.5 previously, beating the forecast of 52.8 and climbing to the gauge’s highest level since April.

US manufacturing PMI figures fell back to 48.0 in August, well below the constant estimate of 49.6. The US services PMI unexpectedly rose to 55.2 from 55.0, compared to the forecast decline to 48.0. Despite the rise in services PMI numbers, core employment numbers continue to show a slowdown in the US labor market, adding to concerns that were largely ignored when the US Bureau of Labor Statistics deleted retroactively more than 800,000 jobs from NFP (Nonfarm Payrolls) since March. week.

GBP/USD price

Cable has snapped a five-day winning streak, but bidding pressure in GBP/USD is still poised for a break at multi-year highs, provided buyers can maintain the pressure long enough to keep prices rising beyond the peak of 1.3142 since July 2023. Odds favor the buyers as GBP/USD has closed in the green for all but one of the last ten consecutive trading days.

GBP/USD Daily Chart

Frequently Asked Questions for Pounds 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 foreign exchange (FX) unit in the world, accounting for 12% of all trades, averaging $630 billion per day as of 2022. Its key trading pairs are GBP/USD, aka “Cable”, which represents 11% of FX, GBP/JPY or “The Dragon” as it is known to traders (3%) and EUR/GBP (2%) . The pound sterling is issued by the Bank of England (BoE).

The most important factor influencing the value of the pound sterling is the monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its main objective of “price stability” – a steady inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the BoE will try to control it 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 that economic growth is slowing. In this scenario, the BoE will consider cutting interest rates to reduce credit so that companies borrow more to invest in growth-generating projects.

Data releases measure the health of the economy and can affect the value of the pound. Indicators such as GDP, manufacturing and services PMI 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, it may encourage the BoE to raise interest rates, which will directly strengthen the GBP. Otherwise, if the economic data is weak, the pound is likely to fall.

Another significant release of data for the pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports in a given period. If a country produces highly sought-after exports, its currency will only benefit from the additional demand created by foreign buyers looking to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

VaselineAugust 22, 2024

0 3 minutes read

GBP/USD price

GBP/USD Daily Chart

Frequently Asked Questions for Pounds Sterling

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