GBP/USD failed to make meaningful headway on Friday, climbing only 0.13% as the Pound Sterling was weighed down by expectations of a rate cut from the Bank of England (BoE) next week. The pair ended the week down by half a percent, marking a second consecutive week of losses after pulling back from last week’s 12-month high above 1.3000. The upcoming BoE rate call on Thursday is expected to deliver a quarter-point rate cut, shifting the benchmark rate down to 5.0% from the current 5.25%.
Looking ahead to the coming week, all eyes are on the Federal Reserve’s (Fed) decision and the Non-Farm Payrolls (NFP) report. The Fed is expected to keep rates steady for one more meeting before starting a rate-cutting cycle in September. Despite steady core US PCE inflation and lower than expected Consumer Sentiment Index, markets are optimistic about a rate cut in September. Rate markets are already pricing in a 25-basis-point rate cut by the FOMC in September, with a 12% chance of a double cut.
The British Pound made slight gains against some major currencies this week, including the Australian Dollar. The Pound Sterling remains under pressure as traders anticipate the upcoming BoE rate cut. The GBP/USD pair has fallen below the 1.2900 handle after retreating from a 12-month peak near 1.3045. Short pressure could push bids below the last swing low near 1.2600, while renewed buying interest may appear if GBP/USD declines further to a rising trendline around 1.2037.
The Pound Sterling, issued by the Bank of England, is the fourth most traded currency in the world, accounting for 12% of all FX transactions. GBP’s key trading pairs are GBP/USD (Cable), GBP/JPY (Dragon), and EUR/GBP. The BoE’s monetary policy is the primary factor influencing the value of the Pound Sterling, with interest rate adjustments aimed at maintaining price stability. Economic data releases such as GDP, Manufacturing and Services PMIs, and employment figures also impact the value of the GBP.
The Trade Balance is another crucial indicator for the Pound Sterling, measuring the difference between a country’s exports and imports. A positive net Trade Balance strengthens a currency as it shows high demand for exports. A strong economy, favorable economic data, and a positive trade balance all contribute to a stronger Pound Sterling. However, expectations of a rate cut from the BoE next week have put downward pressure on the GBP, leading to a decline against major currencies this week.
