GBP/USD flattens as markets await key midweek data

VaselineAugust 13, 2024

0 3 minutes read

GBP/USD flattens as markets await key midweek data

GBP/USD hit the midpoint on Monday as markets retreated.
Short-term volatility spikes have given way to light waters.
Key UK and US inflation data are available mid-week.

GBP/USD continued to flatten on Monday, trading and testing key technical levels as markets braced for a mid-week inflation data release. Recent volatility, which saw Cable fall back to long-term averages below 1.2700, has faded into the background for now, and investors will be gearing up for a round of key inflation prints on both sides of the Atlantic, which will take place in the middle of the week.

Forex Today: UK Jobs and US Producer Prices report… for starters

US producer price index (PPI) business-level inflation figures are out on Tuesday. The forecast points to a decline in core PPI to 2.7% from 3.0%. On Wednesday, annual core CPI inflation is expected to ease to 3.2% from 3.3%. Market sentiment relies on a balanced inflation outcome for equities to perform well.

As for the UK, a light Monday gives way to a busy economic release calendar, with UK jobless claims on Tuesday and UK CPI inflation due on Wednesday. UK core CPI inflation is forecast to fall to 3.4% p.a. from 3.5%, while headline CPI inflation is forecast to rise to 2.3% p.a. from 2.0%.

Economic indicator

Change in number of claimants

The change in claimants published by the UK Office for National Statistics shows the change in the number of unemployed people in the UK claiming benefits. There is a tendency for the metric to influence GBP volatility. Usually, an increase in the indicator has negative implications for consumer spending and economic growth. Generally, a high reading is seen as bearish for the British Pound (GBP), while a low reading is seen as bullish.

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 offers 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 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 13, 2024

0 3 minutes read