GBP/USD recovers on general sentiment improvement
- GBP/USD rose 0.6% on Tuesday, bolstered by Greenback outflows.
- Fed Chair Powell sees few moves on rates, tariffs expected to be reversed.
- US inflation data, UK GDP growth figures on the horizon.
GBP/USD recovered ground on Tuesday, snapping a three-day losing streak and recovering back into touch range of the 1.2450 level, rising around two-thirds of one percent on the day. Global FX markets sold off the US Dollar slightly as risk appetite softly recovers across the board, bolstered by a steady-handed appearance from Federal Reserve (Fed) Chair Jerome Powell and and expectations that the latest iteration of US President Donald Trump’s tariff threats will be averted by last-minute concessions, as has been the pattern since Donald Trump took over the White House.
- Fed’s Hammack: Likely appropriate to hold rates steady for some time
- Fed's Williams: US should grow by 2% in 2025, 2026
- Jerome Powell Testimony: Will commit to following data on tariff effects
UK data remains thin through the midweek sessions, but Cable traders will be on the lookout for Thursday’s UK Gross Domestic Product (GDP) print. UK GDP is expected to show a recovery to an annualized 1.1% during the fourth quarter, though the Q4 GDP QoQ print is expected to come in at a -0.1% contraction.
Forex Today: Key US CPI takes centre stage amid a cautious Fed
US Consumer Price Index (CPI) inflation will be the dominant print on Wednesday. Headline US CPI inflation is expected to hold at 2.9% YoY, while core CPI inflation is forecast to tick down to 3.1% versus the last print of 3.2%. US Producer Price Index (PPI) inflation follows up on Thursday, with core PPI business-level inflation expected to cool slightly to 3.3% YoY from 3.5%.
GBP/USD price forecast
Tuesday saw the GBP/USD shake off its near-term bearish momentum, cutting off a three-day losing streak and recovering some chart territory to reclaim a familiar midrange near 1.2450. The pair still remains hobbled just south of the 50-day Exponential Moving Average (EMA) near the 1.2500 handle.
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.