GBP/USD tilted into the red for a fifth straight trading day on Thursday, continuing to test the waters just north of the 1.3300 handle. Cable bids have fallen steadily after the pair failed to push its way above the 50-day Exponential Moving Average (EMA), but is catching firm support on the low of a near-term consolidation zone.
UK Retail Sales will kick off Friday’s economic data docket during the London market session. UK Retail Sales are expected to contract a slight 0.2% in September, down from the previous 0.56% uptick. UK Purchasing Managers Index (PMI) survey results for October are due slightly later. They are generally expected to show a slight improvement in how UK business respondents view the UK’s economic state.
The key data release on Friday will be US Consumer Price Index (CPI) inflation, due at 12:30 GMT. Median market forecasts are hoping that core CPI inflation will remain in place at 3.1% YoY in September. This will serve as one of the last meaningful inflation metrics to be posted before the Federal Reserve (Fed) convenes for its next interest rate decision, which is due to be announced on October 29 and is overwhelmingly expected to be a follow-up quarter point interest rate cut.
GBP/USD daily chart
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.