GBP/USD declines further as Greenback rally continues
- GBP/USD shed further weight on Thursday, stepping into a sixth straight down day.
- Losses are piling up as trade concerns and inflation fears grip market sentiment.
- US NFP jobs data to cap off a tumultuous week on Friday.
GBP/USD sank again on Thursday, falling for a sixth straight session and dragging the Pound Sterling (GBP) down nearly 3% top-to-bottom from last week’s peak near 1.3588. Cable is getting dragged back into bearish territory as the US Dollar (USD) catches a broad-market bid on renewed interest rate woes amid rebounding US inflation data and a looming Nonfarm Payrolls (NFP) report on Friday.
United States (US) economic data remains far more robust than many market watchers and policymakers had feared when the Trump administration kicked off a never-ending cycle of tariff threats and subsequent walk backs. Global reciprocal tariffs have routinely been announced, delayed, and re-announced, but key double-digit tariffs on core industries like steel and aluminum imports, as well as foreign cars, are already beginning to bite around the edges of key inflation metrics.
PCE uptick reminds Fed watchers that rate cuts are contingent on policy success
Core US Personal Consumption Expenditure Price Index (PCE) inflation ticked higher in June, rising 0.3% MoM as many market participants had expected. On an annualized basis, PCE inflation accelerated to 2.6% YoY, outrunning the expected hold at 2.5%. US Consumer Income also rebounded 0.3% in June, and rising wage pressures will add further inflationary forces further down the line.
US Nonfarm Payrolls (NFP) remain on the data docket for this Friday, promising to close out the trading week with a tense release. US jobs and inflation data have taken on additional importance for the Fed following this week’s decision to hold interest rates steady for another meeting period. Annualized headline PCE inflation, a key inflation metric for the Fed’s rate-setting policymakers, has remained above the Fed’s 2% target band for almost four and a half years.
GBP/USD price forecast
A sixth straight down day has put Cable on a collision course with the 200-day Exponential Moving Average (EMA) near 1.3131. Price action has pivoted firmly bearish after GBP/USD flubbed a bullish climb toward 1.3600, although new short entries will face challenges with technical oscillators already pinned in oversold territory.
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.