GBP/USD tests 1.33 as greenback weakness prevails

Vaseline4 weeks ago

0 4 minutes read

GBP/USD tests 1.33 as greenback weakness prevails

GBP/USD continues to test new 30-month highs.
Fed interest rate cut triggers greenback sell-off.
BoE kept rates on hold despite early summer cut, UK retail sales under way.

GBP/USD found a new 30-month high on Thursday, with a broad market sell-off in the US dollar triggering a risk bid in Cable and supporting the pound. The Federal Reserve’s (Fed) cut of 50 basis points this week helped galvanize global markets into a risk-on position, while the Bank of England’s (BoE) scary rate hold did little to trigger further strength under GBP.

The only benchmark on Friday will be UK retail sales for August, although not much of a boost is likely to come with investors exhausted after a central bank doubleheader between the Fed and the BoE. UK retail sales in August are expected to fall to 0.4% from 0.5% previously, while the annualized figure is expected to hold steady at 1.4%.

The BoE kept interest rates at 5.0% early on Thursday, with the Monetary Policy Committee (MPC) voting seven to one for another rate hold. The BoE initially opened the door to rate cuts at the start of the summer, with a quarter-point cut at its last meeting, but the move may have turned out to be premature. BoE policymakers are waiting to see how the UK economy performs before making further rate adjustments.

In US data, initial jobless claims fell again to 219,000 for the week ended September 13, down from a revised 231,000 the previous week and below the market’s average forecast of 230,000. The Philadelphia Fed’s manufacturing survey for September also came in well above expectations, with the manufacturing terms spread index improving to 1.7 from a previous seven-month low of -7.0 and handily beating the print expected of -1.0.

Fed Chairman Jerome Powell convinced markets that the Fed’s huge 50 bps rate cut this week was not a quick response to deteriorating economic conditions, but rather an attempt to get ahead of the curve and strengthen the US labor market. Powell successfully advocated rebranding an entire half-percentage-point cut as a “recalibration,” and investors rewarded the Fed’s latest narrative pivot by pumping cash into risk assets everywhere and pulling the rug out from under the U.S. dollar. refuge. .

Economic indicator

Retail Sales (MoM)

Retail sales data, published monthly by the Office for National Statistics, measures the volume of goods sold by UK retailers directly to end customers. Changes in retail sales are widely watched as an indicator of consumer spending. Percentage changes reflect the rate of change in such sales, with the MoM reading comparing sales volumes from the reference month to the previous month. Generally, a high reading is seen as bullish for the British Pound (GBP), while a low reading is seen as bearish.

GBP/USD price

Despite hitting a new 30-month high on Thursday and breaching the 1.3300 mark, cable bidders struggled to push price action deep into bull country, and markets will enter Friday’s close with prices approaching the key psychological level. A firm bullish trend is still contained in daily candlesticks, with the pair climbing above the 50-day exponential moving average (EMA) near 1.3000.

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 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.

Vaseline4 weeks ago

0 4 minutes read