- GBP/USD trades below 1.3480 as the US Dollar steadies near 97.60 after the Fed’s 25 bps rate cut.
- UK Retail Sales beat expectations at 0.5% MoM, but fiscal worries cap Sterling’s upside against the Greenback.
- Quad witching adds volatility risks, while traders eye US data and Fed speakers next week.
The British Pound (GBP) is under heavy pressure from the ‘King Dollar’ on Friday, down 0.52% even though the docket in the US is absent, with just Federal Reserve (Fed) officials crossing the newswires. UK data, although positive, failed to underpin Sterling in Retail Sales. GBP/USD is trading at 1.3482.
Sterling drops despite upbeat UK Retail Sales, pressured by broad Dollar recovery and fiscal concerns
Market mood remains mixed amid a quad witching options expiring on Friday, which could trigger volatility in US equity markets. The US Dollar has recovered after falling to three-year lows in the aftermath of the Fed’s monetary policy decision on Wednesday.
Minnesota Fed President Neel Kashkari said that he supported the rate cut this week as risks of an increase in unemployment warranted some action. He noted that it is hard to see inflation climbing much higher than 3% from tariffs and added that if the jobs market improves and inflation rises, the Fed should hold rates. He added that he is open to hiking rates if economic conditions warrant.
Meanwhile, Wednesday’s Fed decision to cut rates by 25 basis points was fully priced by market participants, as the Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of six currencies, rallied sharply and turned flat on the week at around 97.62.
Across the pond, UK Retail Sales rose 0.5% MoM in August, exceeding forecasts of 0.4%, while sales growth in July was slightly revised down. Despite this, Cable failed to outperform the US Dollar amid growing concerns about Britain’s finances.
Next week, the US economic docket will feature S&P Global Flash PMIs, Durable Goods, Jobless Claims, GDP data and the release of the Fed’s favorite inflation gauge, the Core PCE. Alongside this, a flurry of Fed officials will hit the media.
In the UK, Flash PMIs, along with Bank of England (BoE) policymakers crossing the wires, are awaited.
Pound Sterling Price This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.09% | 0.56% | 0.19% | -0.43% | 0.73% | 1.60% | -0.15% | |
| EUR | 0.09% | 0.68% | 0.23% | -0.33% | 0.87% | 1.66% | -0.06% | |
| GBP | -0.56% | -0.68% | -0.42% | -1.00% | 0.19% | 0.97% | -0.85% | |
| JPY | -0.19% | -0.23% | 0.42% | -0.63% | 0.60% | 1.41% | -0.32% | |
| CAD | 0.43% | 0.33% | 1.00% | 0.63% | 1.27% | 2.00% | 0.16% | |
| AUD | -0.73% | -0.87% | -0.19% | -0.60% | -1.27% | 0.78% | -0.96% | |
| NZD | -1.60% | -1.66% | -0.97% | -1.41% | -2.00% | -0.78% | -1.80% | |
| CHF | 0.15% | 0.06% | 0.85% | 0.32% | -0.16% | 0.96% | 1.80% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
GBP/USD Price Forecast: Bearish in the short-term if it stays below 1.3500
GBP/USD shifted from being upward-biased to negative in the week. Eventually, the ‘evening star’ drove the exchange rate below 1.3500 and increased the chances of testing the confluence of the 100 and 50-day SMAs around 1.3477/63. A daily close below the latter clears the path to test the September 3 low of 1.3332.
Conversely, a GBP/USD daily close above 1.3600 could cement the case for another attempt to challenge the yearly peak at 1.3788.
Pound Sterling FAQs
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 unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in 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 economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, 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 but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.