GBP/USD pars losses but ends week lower

VaselineAugust 9, 2024

0 3 minutes read

GBP/USD was down for a fourth consecutive week.
Despite the early losses, Cable made up some ground late in the week.
Next week: UK and US CPI inflation updates.

GBP/USD ended a fourth consecutive week in the red, closing down around four-tenths of a percent, despite a late-week recovery from lows below the 1.2700 level. A weak presentation of the economic calendar from the UK gave sterling traders a breather after the Bank of England (BoE) unleashed a broad pound pound strike. Market flows have since rebalanced, with investors now turning to next week’s consumer price index (CPI) inflation readings due on both sides of the Atlantic.

Next week’s forecast: US CPI and Fed easing should drive sentiment

Market focus is on the likelihood of a rate cut by the Federal Reserve in September. Rate markets have fully factored in the start of a rate-cutting cycle when the Federal Open Market Committee (FOMC) meets on September 18. However, expectations for an initial double cut of 50 basis points eased slightly from nearly 70% earlier this week. . According to CME’s FedWatch tool, rate traders estimate a 53.5% chance of a 50 bps cut in September, with two additional 25 basis point cuts projected for the rest of 2024.

Next week, investors will have fresh inflation data to look out for, with US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation scheduled for Tuesday and Wednesday, respectively. US retail sales and an update from the University of Michigan’s Consumer Sentiment Survey Index are also expected next week. Both core CPI inflation and headline CPI inflation are currently around 3% year-on-year, and investors will be looking for further easing in headline numbers to support the case for Fed rate cuts.

UK CPI inflation is expected to rise to 2.3% year-on-year in July from 2.0% previously, while core CPI inflation numbers are forecast to fall to 3.4% from 3 .5%. UK Gross Domestic Product (GDP) growth figures are also expected at the end of next week, with UK Q2 GDP expected to fall to 0.6% from 0.7% previously.

GBP/USD Price Forecast

Cable continues to challenge the 200-day exponential moving average (EMA) to the downside at 1.2649, but bidders have stepped up so far to prevent bids from falling closer to the 1.2600 hand. However, the bullish momentum has evaporated as GBP/USD remains down more than 2% from 12-month highs just above 1.3000 set in July.

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.

VaselineAugust 9, 2024

0 3 minutes read

GBP/USD Price Forecast

GBP/USD Daily Chart

Frequently Asked Questions for Pounds Sterling

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