GBP/USD breaks above 1.34 for the first time since March 2023

Vaseline2 weeks ago

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GBP/USD breaks above 1.34 for the first time since March 2023

GBP/USD continues to rally against the pound on greenback weakness.
US consumer sentiment data shows that US consumers are still wary of inflation.
Markets tilted toward higher expectations of more Fed tapering.

GBP/USD extended sterling’s ongoing rally for another straight day, breaking above the 1.3400 handle and setting new 30-month highs after the US dollar weakened broadly on Tuesday. The greenback market spread gave Cable just what it needed to keep the sterling bull run in balance.

It will be a quiet show for the pound on the data file on Wednesday, although pound traders will be keeping an eye on comments from Megan Greene, a member of the Bank of England’s (BoE) Monetary Policy Committee (MPC). MPC member Greene will be speaking at the North East of England Chamber of Commerce.

The US side of Tuesday’s economic data is similarly underweight for the midweek session. August’s new home sales numbers are unlikely to push either way and will be followed by a speech by Federal Reserve Board of Governors (Fed) member Adriana Kugler, who will speak at the Harvard Kennedy School in Cambridge.

Consumer confidence deteriorated broadly on Tuesday, and consumer expectations for 12-month inflation accelerated to 5.2%. Consumers also reported a general weakening of the family’s six-month financial outlook, and consumer assessments of overall business conditions turned negative.

The waning consumer confidence results sparked a renewed bid in rate markets for a further cut in November. According to CME’s FedWatch tool, rate markets are pricing in a nearly 60% chance of a second 50bps rate cut on Nov. 7 and only 40% odds of a more reasonable 25bps rate cut. Rate traders priced in roughly equal odds of a 50-bps or 25-bps rate cut earlier in the week.

GBP/USD price

Cable buyers continue to shrug off all near-term warning signs, pushing GBP/USD deeper into overbought territory. The pair has gained over 3% over the past two weeks since the last swing low on daily candlesticks at the 1.3000 handle.

With price action trading north of 1.3400, short sellers face tough choices; while Cable looks increasingly appetizing for a quick play at the bottom, the lack of technical resistance means timing a short entry is too risky to bid directly against the still-healthy bullish momentum.

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.

Vaseline2 weeks ago

0 3 minutes read