- GBP/USD received demand on Monday, rising 0.7%.
- PMI numbers were softer on both sides of the Atlantic.
- The decline in dollar flows gave the British pound a chance to catch its breath.
The GBP/USD pair extended its second day of gains in a row, starting the new trading week up seven-tenths of one percent and pulling bids back above the 1.2500 level after last week’s bearish dip below 1.2400. Purchasing Managers’ Index (PMI) numbers have missed the mark in both the UK and the US. However, the overall environment of high risk appetite kept safe haven flows into the US dollar at bay.
The UK PMI numbers for December were right over the mark, coming in below Wall Street expectations and falling but remaining above the 50.0 watermark of contraction expectations. The composite PMI in particular fell to a 13-month low, falling to 50.4 from an expected 50.5.
The final U.S. S&P global PMI numbers came in somewhat off-par on Monday, with December composite and services PMIs up month-over-month, albeit less than analysts had expected. Both indices saw a slight downward revision from their initial reading, but are still gaining strength as the US economy continues.
The main print for the mid-week window will be the US Services PMI for December on Tuesday. The median market forecast sees a rise to 53.0 from 52.1 the previous month. Friday’s non-farm payrolls (NFP) report will cast a long shadow over markets this week, with investors anticipating a moderate reading that should help push the Fed toward more interest rate cuts, but not too weak or aggressive toward any… From both sides.
GBP/USD price forecast
The GBP/USD pair retreated in a two-day rally, a welcome technical turnaround after the pair fell to a nine-month low last week below the 1.2400 level. While selling pressure is still heading towards the key 1.2000 price level, an exhaustive play could be on the cards as buyers attempt to consolidate price action back to the 50-day Exponential Moving Average (EMA) falling through the 1.2700 handle.
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.