British Pound retreats further from one-week top as USD buying remains unabated
- GBP/USD extends the overnight pullback from a one-week high amid a broadly firmer USD.
- Oil-driven inflation risks remain supportive of elevated US bond yields and support the USD.
- BoE rate hike bets could act as a tailwind for the GBP and limit deeper losses for spot prices.
The GBP/USD pair edges lower during the Asian session on Thursday, retreating further from levels beyond the 1.3300 mark, or a one-week high, touched the previous day. Spot prices currently trade just above mid-1.3200s, though a mixed fundamental backdrop warrants some caution before placing aggressive directional bets.
The British Pound (GBP) might continue to draw support from an upward revision of UK Q2 GDP growth to 0.4%, which reaffirmed bets for a 25-basis-point (bps) rate hike by the Bank of England (BoE) at the upcoming meeting on November 5. In contrast, the US PCE data, released on Wednesday, tempered expectations for an October Federal Reserve (Fed) rate hike. This acts as a tailwind for the GBP/USD pair, though the prevailing US Dollar (USD) buying interest caps the upside.
According to CME Group's FedWatch Tool, traders are still pricing in around an 87% chance that the US central bank will raise borrowing costs by the end of this year. Adding to this, oil-driven inflation fears keep US bond yields elevated near multi-year highs. This, along with persistent geopolitical uncertainties stemming from the US-Iran standoff, assists the safe-haven Greenback in preserving its recent strong gains to a two-month high and warrants some caution for GBP/USD bulls.
Traders now look forward to the US economic docket – featuring the usual Weekly Initial Jobless Claims and the ISM Manufacturing PMI. Apart from this, speeches from a slew of influential FOMC members and further developments surrounding the Middle East crisis will drive the USD. The focus, however, will remain glued to the US Nonfarm Payrolls (NFP) report, due on Friday, which will determine the USD trajectory and provide some meaningful impetus to the GBP/USD pair.
GBP/USD daily chart
Technical Analysis
The GBP/USD pair keeps a bearish near-term tone following the overnight failure near the 23.6% Fibonacci retracement level of the August-September downswing. Moreover, successive overhead barriers at 1.3383 and 1.3439 reinforce a downside bias as spot prices consolidate closer to the lower end of the recent range.
Meanwhile, a daily close above these hurdles would be needed to ease the bearish pressure. On the downside, the structural anchor of the move at 1.3203 acts as initial support, and a break below this floor would expose fresh lows in the current bearish cycle.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.