The GBP/USD pair remained steady near the 1.2950 mark in the early Asian session on Tuesday amidst key upcoming events that could impact the currency pair. Traders are closely monitoring the US presidential election outcomes, as well as the Bank of England (BoE) and the US Federal Reserve (Fed) monetary policy decisions scheduled for Thursday. The USD weakened as the US Dollar Index (DXY) broke below the 104.00 support level and reached two-week lows near 103.60 in response to improved polling for Democratic candidate Kamala Harris. Strategists attributed the USD weakness to a poll showing Harris with a lead over Trump in Iowa. The Fed is expected to cut rates by 25 basis points at its November meeting, with a possibility of another cut in December. On the GBP side, economists are forecasting a quarter-point reduction in the benchmark rate to 4.75% at BoE’s rate decision on Thursday, although the longer-term outlook remains uncertain.
The Pound Sterling (GBP) is the oldest currency in the world, with a rich history dating back to 886 AD. It is the official currency of the United Kingdom and accounts for 12% of all FX transactions worldwide, averaging $630 billion a day. The GBP has key trading pairs such as GBP/USD (‘Cable’), GBP/JPY (‘Dragon’), and EUR/GBP. The Bank of England (BoE) issues the Pound Sterling and plays a critical role in determining its value through monetary policy decisions.
Monetary policy decisions by the Bank of England are the primary factor influencing the value of the Pound Sterling. The BoE aims to maintain price stability by keeping inflation around 2%, using interest rate adjustments as its primary tool. When inflation is high, the BoE may raise interest rates to curb it, making the UK more attractive to global investors. On the other hand, low inflation signals slowing economic growth, prompting the BoE to consider lowering interest rates to stimulate borrowing and investment.
Economic data releases also play a crucial role in determining the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment figures can impact the direction of the GBP. A strong economy attracts foreign investment and may lead to interest rate hikes, strengthening the GBP. Conversely, weak economic data can lead to a depreciation of the Pound Sterling.
Trade Balance is another significant indicator for the Pound Sterling, measuring the difference between a country’s exports and imports. A positive net Trade Balance indicates that a country’s exports are in high demand, strengthening its currency. Conversely, a negative balance can weaken the currency. Therefore, monitoring economic indicators, monetary policies, and trade balances can help understand the factors influencing the value of the Pound Sterling in the forex market.