GBP/USD chalked up seventh consecutive day of gains on Fed rate cut hopes

VaselineAugust 23, 2024

0 4 minutes read

GBP/USD chalked up seventh consecutive day of gains on Fed rate cut hopes

GBP/USD broke above 1.3200 on broad market weakness in the greenback.
The Fed nodded to imminent interest rate cuts, sending risk appetite through the roof.
Coming up next week: UK bank holiday Monday, US GDP and PCE inflation.

GBP/USD saw a Fed-fuelled rally on Friday, climbing around a full percent on the trading day and ending the week with a seventh consecutive bullish daily candle as the US dollar tumbles across the board.

Next week’s forecast: Recession concerns overtake Fed easing

According to CME’s FedWatch tool, rate markets are pricing in a roughly three-to-one chance of a double cut on Sept. 18, with the rest of the board still committed to a quarter-point cut. Bets on a 50 bps opening rate cut in September rose after Fed Chairman Jerome Powell, while speaking at the Jackson Hole Economic Symposium on Friday, openly acknowledged that the time had finally come for the central bank to US to start cutting benchmark rates.

Ahead: UK bankers take a break, US PCE inflation figures loom

Going into next week, cable traders will want to keep an eye on the upcoming UK bank holiday on Monday. For the rest of the week, UK economic data remains limited, although money markets will pay particular attention to upcoming US Gross Domestic Product (GDP) increases and Personal Consumption Expenditure (PCE) inflation figures due later next week.

Sterling PRICE This week

The table below shows the percentage change in the British Pound (GBP) against the main listed currencies this week. The British pound was the strongest against the US dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-1.49%	-2.07%	-2.24%	-1.27%	-1.85%	-3.05%	-2.04%
EURO	1.49%		-0.65%	-0.73%	0.24%	-0.45%	-1.74%	-0.58%
GBP	2.07%	0.65%		-0.29%	0.81%	0.14%	-1.08%	0.08%
JPY	2.24%	0.73%	0.29%		0.95%	0.37%	-0.68%	0.08%
CAD	1.27%	-0.24%	-0.81%	-0.95%		-0.62%	-1.72%	-0.82%
AUD	1.85%	0.45%	-0.14%	-0.37%	0.62%		-1.10%	-0.10%
NZD	3.05%	1.74%	1.08%	0.68%	1.72%	1.10%		1.12%
CHF	2.04%	0.58%	-0.08%	-0.08%	0.82%	0.10%	-1.12%

The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the British Pound in the left column and move along the horizontal line to the US Dollar, the percentage change shown in the box will be GBP (basis)/USD (quote).

GBP/USD price

Action on wireline charts has been particularly one-sided this week, with GBP/USD steadily climbing from Monday’s opening bids near 1.2950. The pair climbed more than 2.1% this week in a firm march to the top of the chart, extending a bid for a recovery from the early August low at 1.2665.

GBP/USD hit a fresh 29-month high on Friday and the pair is up 28% since hitting all-time lows in Q3 2022. Cable’s current bull run has yet to show signs of running out, and its ended in the green for all but one of the past 11 consecutive trading days, marking a dizzying run to the top of the chart.

GBP/USD 4 Hour Chart

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 23, 2024

0 4 minutes read