GBP/USD finds fresh lows as Greenback climbs

• GBP/USD shed another 0.25% on Monday as markets tilt risk-off.
• Rate cut hopes continue to evaporate, and a lack of UK data keeps Cable pinned.
• FOMC meeting minutes, US CPI inflation, and UK GDP dot the economic landscape this week.

GBP/USD sunk another one-quarter of one percent on Monday, easing into a fresh four-week low and closing below the 1.3100 handle for the first time since mid-September. Investors rate cut hopes are buckling under the weight of a firmer-than-expected US labor market, and geopolitical tensions have kept trader risk appetite pinned.

Investor appetite took a leg down to kick off the fresh trading week as market hopes for further outsized rate cuts continue to dwindle. Rate markets now overwhelmingly expect the Fed’s next rate move on November 7 will be a demure quarter-point cut, down from the heady 50 bps that rate markets expected just after the Fed’s opening volley of a 50 bps double cut in September. Fedspeak has steadily telegraphed to markets that a further deterioration in the US economy, and specifically the US labor market, will be the thing that opens the door to further extreme moves on rates.

Last week’s bumper Nonfarm Payrolls (NFP) eviscerated nearly all hopes for a double-wide rate cut in November, to the point rate traders are seeing a one-in-five chance of no rate cut at all on November 7, according to the CME’s FedWatch Tool.

Data remains limited on the UK side, with GBP traders forced to wait until Friday’s UK Gross Domestic Product (GDP) print. Meanwhile, Greenback speculators will be keeping a close eye on US Consumer Price Index (CPI) inflation figures due on Thursday.

GBP/USD price forecast

Cable has closed in the red for a fifth straight day as fear-fueled Greenback bids continue to rise. The pair has dipped back below the 50-day Exponential Moving Average (EMA), and GBP/USD daily candlesticks have closed below 1.3100 for the first time since mid-September. Despite setting multi-year highs last month, Cable is still down 2.8% peak-to-trough.

GBP/USD daily chart

Pound Sterling FAQs

What is the 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 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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.

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