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    • GBP/USD rally stalls but downside remains limited
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    GBP/USD rally stalls but downside remains limited

    Vaseline Posted on

    • GBP/USD reached a new 13-month high before falling again.
    • Cable closed where it started on Thursday, trading above 1.3000.
    • UK PMI figures have improved across the board, but mixed US PMIs are causing risk aversion.

    GBP/USD hit a fresh 13-month high on Thursday, climbing to 1.3130 before broader market sentiment took a turn for the worse, bolstering the greenback. Cable was pulled back to the day’s opening bids around 1.3090 after US purchasing managers’ index (PMI) data was skewed.

    Forex Today: Investors Look to Jackson Hole and Rate Cuts

    All eyes will be on Federal Reserve (Fed) Chairman Jerome Powell on Friday, speaking at the Jackson Hole Economic Symposium. Markets are hoping the Fed chief will introduce firmer guidance on how likely the Fed is to cut in September, and by how much.

    Market participants continue to crave a September rate cut, but Thursday’s PMI data set a setback after a recent uptick in bets that the Fed would cut rates by 50 basis points on Sept. 18. Rate markets have returned to a healthier consensus of a quarter-point rate cut in September, pricing in a roughly 75% chance of a 25 basis point cut.

    UK PMI figures rose broadly to a higher-than-expected print in August, with the Composite, Manufacturing and Services PMI components all coming in above forecasts and rising from their previous readings. UK Services activity rose to 53.3 from the previous 52.5, beating the forecast of 52.8 and taking the indicator to its highest level since April.

    The U.S. manufacturing PMI fell back to 48.0 in August, well below the forecast stable print of 49.6. The U.S. services PMI unexpectedly ticked up to 55.2 from 55.0 compared to the forecast decline to 48.0. Despite the rebound in the services PMI, underlying employment numbers continue to show a tightening in the U.S. labor market, adding to concerns that were largely ignored when the U.S. Bureau of Labor Statistics this week retroactively removed more than 800,000 jobs from its March Nonfarm Payrolls (NFP) print.

    GBP/USD price prediction

    Cable has snapped a five-day winning streak, but bid pressure in GBP/USD is still on track to reach multi-year highs, provided buyers can maintain the pressure long enough to push prices above the July 2023 peak of 1.3142. The odds are in buyers’ favor, as GBP/USD has closed in the green for all but one of the past ten consecutive trading days.

    GBP/USD daily chart

    Frequently Asked Questions about Pound Sterling

    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 foreign exchange (FX) unit in the world, accounting for 12% of all transactions, averaging $630 billion per day, according to 2022 data. The main trading pairs are GBP/USD, also known as ‘Cable’, accounting for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is called by traders (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).

    The most important factor influencing the value of the pound sterling is the monetary policy set by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability”: a stable inflation rate of around 2%. The main tool it uses to achieve this is to adjust interest rates. If 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 obtain credit. This is generally positive for the pound, as higher interest rates make the UK more attractive to global investors as a place to park their money. If inflation falls too low, it is a sign that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to make credit cheaper, so that businesses can borrow more to invest in growth-generating projects.

    Data releases measure the health of the economy and can affect the value of 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, it can also encourage the BoE to raise interest rates, which will directly strengthen sterling. Otherwise, if economic data is weak, sterling is likely to fall.

    Another important data release for the pound sterling is the trade balance. This indicator measures the difference between what a country earns on its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency benefits purely from the extra demand created by foreign buyers wanting to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

    Vaseline
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