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GBP/USD is rising but still exposed to the downside

  • GBP/USD saw a bounce back from the 200-day EMA on Thursday.
  • Markets bounce back after falling US jobs data.
  • Key inflation data for both the UK and the US will be available next week.

GBP/USD found a step higher on Thursday, climbing around half a percent as market sentiment continues to recover from a three-day slide that began in earnest late last week following a misprint in payrolls figures US non-farm payrolls (NFP).

Forex Today: Market turbulence is dissipating

Friday will close the trading week with a thin economic calendar on both sides of the Atlantic, and markets will brace for fresh inflation updates in both the UK and the US. Sterling took a beating after a recent quarter-point rate cut by the Bank of England (BoE) and markets are looking for signs of further UK rate cuts and an initial rate cut by the Federal Reserve US (Fed) expected. in September.

Initial US jobless claims for the week ended August 2 were printed at 233,000, short of the forecast of 240,000 and down from 250,000 the previous week. The drop in initial jobless numbers is helping investors keep a lid on recent recession fears after last week’s download of US labor data sparked a firm bid to reduce risk.

US data watchers will be eagerly awaiting another round of consumer and producer inflation figures due next week. US producer price index (PPI) inflation is scheduled for next Tuesday and consumer price index (CPI) inflation next Wednesday. As for the UK, UK employment figures are expected on Tuesday, followed by a July update on UK CPI inflation.

GBP/USD Price Forecast

Thursday’s bullish Cable is on course for a top run after bids broke above the 200-day exponential moving average (EMA) at 1.2672. Bidders will look to recoup lost chart paper in a -2.9% decline from 12-month highs set in mid-July near 1.3050.

Bullish momentum will need to rebound above the 50-day EMA at 1.2780, with price action locked in the divergence territory between the 50- and 200-day EMAs.

GBP/USD Daily Chart

Frequently Asked Questions for Pounds 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 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 lowering 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.

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