The GBP/USD pair is trading near 1.3105 in Friday’s early European session, marking its seventh consecutive day in positive territory. Investors are confident that the US Federal Reserve (Fed) will start easing monetary policy in the upcoming September meeting, which is weakening the US Dollar (USD) broadly. The speeches of Bank of England (BoE) Governor Andrew Bailey and Fed Chair Jerome Powell at the Jackson Hole Symposium on Friday will be closely watched for clues about the direction of interest rates. The minutes of the July 30-31 FOMC meeting showed that most Fed policymakers support a rate cut next month due to progress in lowering inflation to the target. Boston Fed President Susan Collins also stated that it will soon be appropriate to start cutting rates as data on inflation are consistent with the target of 2%.
Investors have adjusted their expectations for a Bank of England (BoE) interest rate cut in September following the release of upbeat Purchasing Managers’ Index (PMI) reports. The preliminary UK Composite PMI for August exceeded expectations, rising to 53.4 from 52.8 in July. Manufacturing PMI also improved to 52.5 in August, beating the previous figure of 52.1. Additionally, the Services figure climbed to 53.3 in August, higher than the consensus of 52.8. As a result, the market is now pricing in less than 30% odds of a BoE September rate cut after the strong PMI data on Thursday, leading to a boost in the Pound Sterling (GBP) against the Greenback.
The Pound Sterling (GBP) is the oldest currency in the world, with a history dating back to 886 AD, and is the official currency of the United Kingdom. It is the fourth most traded currency in the world, accounting for 12% of all FX transactions, with key trading pairs including GBP/USD, GBP/JPY, and EUR/GBP. The value of the Pound Sterling is primarily influenced by the monetary policy decisions of the Bank of England, which aims for price stability through an inflation rate of around 2%. Adjustments in interest rates are used to control inflation, with higher rates making the UK more attractive for global investors and strengthening the GBP.
Economic data releases play a crucial role in determining the value of the Pound Sterling, including indicators such as GDP, Manufacturing and Services PMIs, and employment figures. A strong economy is positive for the Pound Sterling as it attracts foreign investment and may lead to higher interest rates, strengthening the currency. Conversely, weak economic data can lead to a decline in the GBP. The Trade Balance is another important indicator for the Pound Sterling, measuring the difference between exports and imports. A positive net Trade Balance strengthens the currency, while a negative balance can weaken it.
Overall, the GBP/USD pair continues to trade in positive territory as investors anticipate a rate cut by the US Federal Reserve and adjust their expectations for a Bank of England rate cut following strong PMI data. The speeches of central bank officials at the Jackson Hole Symposium will provide further insights into the future direction of interest rates, influencing the movement of the Pound Sterling against the US Dollar. Economic data releases and Trade Balance figures will also be monitored closely for their impact on the value of the Pound Sterling in the coming days.
