GBP/USD hits 31-month high, pound’s rally extends

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0 3 minutes read

GBP/USD hits 31-month high, pound’s rally extends

GBP/USD hit a new multi-year high on Thursday.
Despite the lack of UK data, GBP continues to rise.
Better-than-expected US data keeps short pressure on the Greenback high.

The GBP/USD currency pair hit a 31-month high of 1.3434 on Thursday, marking a significant milestone in its upward trajectory. This increase was driven primarily by widespread selling of the US dollar, supported by improved economic indicators that eased concerns about a potential economic slowdown.

The data file remains light on the UK side for the rest of the week and cable traders will be forced to sit on their hands and wait for GBP-centric data to come next week, starting with the UK Gross Domestic Product (GDP) figure scheduled for Monday.

The Federal Reserve’s recent decision to cut interest rates by 50 basis points has raised concerns in global markets, with some investors fearing the drastic move would be a response to an impending economic recession in the US. However, Fed Chairman Jerome Powell clarified that the rate cut was a proactive measure aimed at supporting the US labor market, rather than a reactive response to signs of recession.

Positive data on US durable goods orders and initial weekly jobless claims further strengthened the Fed’s stance, with both indicators beating expectations. The narrative of a “soft landing” for the economy remained intact. The upcoming release of Personal Consumption Expenditure (PCE) inflation data on Friday will serve as a litmus test for assessing the impact of the Fed’s recent interest rate cut.

In August, US durable goods orders stagnated at 0.0% month-on-month, below the previous month’s sharp increase but still beating estimates of a 2.6% contraction. In addition, initial jobless claims for the week ended September 20th showed a decline to 218K, beating expectations of 225K and down from the revised 222K figure the previous week.

GBP/USD Price Forecast

GBP/USD, also known as Cable, has been consistently hitting multi-year highs and there are few significant technical obstacles in the way for sterling bulls. However, the strong upside momentum has left GBP/USD vulnerable to a possible downward correction as market dynamics come into play. If there is a significant increase in selling pressure in the current price region, it could easily push the price below the key support level at 1.3100 and towards the 50-day EMA at 1.3076.

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 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.

Vaseline2 weeks ago

0 3 minutes read

GBP/USD Price Forecast

GBP/USD Daily Chart

Frequently Asked Questions for Pounds Sterling

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