GBP/USD tumbled on a cautious Tuesday

VaselineOctober 1, 2024

0 3 minutes read

GBP/USD slipped back below 1.3300 on Tuesday as risk-off flows ballooned.
Reports of Iranian missiles at Israel have reinforced fears of further geopolitical conflict.
US data ahead of Friday’s NFP labor summary did little to inspire investor confidence.

GBP/USD suffered a drop on Tuesday, retreating to its lowest bids in more than a week after the US ISM PMI (PMI) numbers erred and missed forecasts across the board. Geopolitical tensions took center stage during the US market session, further dampening risk appetite following reports that Iran had fired at Israel in a clear escalation of ongoing tensions in the Middle East.

The economic calendar remains relatively loose and clear on the sterling side, with sterling traders forced to wait until the Bank of England’s (BoE) monetary policy report hearings due early Thursday. On the US side of things, a sprinkling of broadly significant but individually meaningless economic data dot the landscape on the way to Friday’s non-farm payrolls (NFP), and investors are dealing with average releases that typically miss.

Forex Today: US labor market to take center stage alongside Fed speakers

September’s US ISM manufacturing PMI remained stubbornly entrenched at 47.2 for the second straight month, completely missing the expected increase to 47.5. ISM producer prices paid also rebounded more than expected in the same period, falling into contractionary territory to 48.3, down from 54.0 previously.

Looking further at US data, August JOLTS job openings rose to 8.04 million, up from a revised 7.7 million from the previous period. However, the rising expansion of listed job openings may not translate directly into new hires, after the ISM Manufacturing Employment Index for September fell to 43.9 from 46.0 previously , completely missing the forecast increase to 47.0.

Investors’ attention turned to focus entirely on geopolitical tensions in the Middle East after early reports that Iran had fired a first missile barrage against Israel in response to Israel’s recent invasion of Lebanon. The US has said it will retaliate on Israel’s behalf, and investors balk at the prospect of a rapid escalation in the ongoing conflict.

GBP/USD Price Forecast

Cable’s slide back on Tuesday dragged the pair back below the 1.3300 handle. Price action is now poised for a bearish extension back into the 50-day exponential moving average (EMA) near 1.3100. However, the path is anything but straightforward for an extended bearish push to the previous low north of 1.3000.

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, also known as “Cable”, which represents 11% of FX, GBP/JPY or “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.

VaselineOctober 1, 2024

0 3 minutes read

GBP/USD Price Forecast

GBP/USD Daily Chart

Frequently Asked Questions for Pounds Sterling

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