- The GBP/USD pair rose again above the 1.2400 level on Friday.
- Markets took a cautious risk appetite stance until the end of the week.
- UK data broadly missed the mark on Friday, and US PMI numbers outperformed the Street.
The GBP/USD pair found a weak recovery on Friday, rising by four-tenths of roughly one percent and ending the first trading week of 2025 back above the 1.2400 level. UK macroeconomic and consumer credit data failed broadly early on Friday, but the low-level numbers barely registered on the needle. On the US side, the results of the US Business Activity Survey helped keep investor sentiment on the hopeful side, keeping risk appetite high.
US ISM Manufacturing Purchasing Managers’ Index (PMI) activity surveys came in higher than expected for December, rising to 49.3 versus an expected flat 48.4. It’s the highest reading for the headline manufacturing activity index in nine months, but all is not rosy in the manufacturing outlook: the ISM manufacturing employment index and the ISM manufacturing prices paid in December missed expectations, meaning producer-level inflation remains intact. It is rising beneath the surface and companies are still cutting more jobs than expected.
Next week, the UK continues the trend of having little or no significant data on the economic release calendar; Everything on the sterling side of the spreadsheet will be strictly low-impact versions. On the US side, US markets and institutions will go on Thursday to observe the death of former President Jimmy Carter, who died on December 29 at the age of 100. Friday will be followed by the first US Nonfarm Payrolls (NFP) report. For the year 2025.
GBP/USD price forecast
Despite the pair’s last-minute upward push to regain strong bids above the 1.2400 level, the pound is ending the first trading week of the year on a bearish note. GBP/USD fell 1.3% on the week and remains poised for an extended decline to 2024 lows near 1.2300.
Price action continues to favor the lower side of things, with the 50-day (1.2685) and 200-day (1.2785) EMAs extending into a bearish crossover, keeping the technical ceiling in place for any upside attempts.
GBP/USD daily chart
Questions and answers about the pound 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 popular foreign exchange (FX) trading unit in the world, accounting for 12% of all transactions, averaging $630 billion per day, according to 2022 data. Its main trading pairs are GBP/USD, also known as “cable”. , which represents 11% of foreign currencies, GBP/JPY, or “the dragon” as traders know it (3%), and EUR/GBP (2). %). The pound sterling is issued by the Bank of England (BoE).
The single most important factor affecting the value of the pound sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its primary objective of “price stability” – a stable inflation rate of around 2%. The primary tool for achieving this is adjusting interest rates. When inflation is too high, the Bank of England will try to rein it in by raising interest rates, making it more expensive for individuals and businesses to obtain credit. This is generally positive for the pound, as higher interest rates make the UK a more attractive place for global investors to put their money. When inflation falls to a very low level, it is a sign that economic growth is slowing. In this scenario, the Bank of England would consider lowering interest rates to reduce the cost of 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 British pound. Indicators such as GDP, manufacturing PMIs, services and employment can all influence the direction of the pound. A strong economy is good for the pound. Not only does it attract more foreign investment, it may encourage the Bank of England to raise interest rates, which will directly strengthen sterling. Otherwise, if economic data is weak, the British pound is likely to fall.
Another important data release for the British Pound is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a certain period. If a country produces highly sought-after exports, its currency will take full advantage of the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.